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ICICI Venture plans to raise $800 million

ICICI Venture Funds Management Co. Ltd, the private equity (PE) subsidiary of India’s largest private sector lender, is ready to float a $500 million (Rs2,420 crore) equity fund with an option of retaining another $300 million, its first attempt to raise money from investors after the exit of its high-profile former chief executive officer (CEO) Renuka Ramnath.

ICICI Bank Ltd will chip in with 10% of the size of the fund. The PE firm has also received commitments of about Rs1,000 crore from domestic institutional investors and high networth individuals.

Four months into her new assignment, Vishakha Mulye, ICICI Venture’s new managing director (MD) and CEO, is also planning to cap the size of the $810 million India Advantage Fund Series 2 at $583 million, 72% of its original corpus.

This may have been triggered by the “key man clause” being activated by the exit of Ramnath.

The key man clause, part of limited partnership agreements, protects investors in the event of any key employee’s exit from the fund.

So far, ICICI Venture received 72% investment commitments and invested in 20 companies. It cannot make any new investments because of Ramnath’s exit.

Mulye is exploring the possibility of giving investors in the $810 million fund the option to move the balance commitments to the new $500 million fund, a source familiar with the development said. Mulye declined to comment on the issue.

“Nearly all private equity funds have this key man clause as a security mechanism for the key management to continue till the tenure of the fund or till the investments are encashed,” said Manikkan Sangameswaran, managing director of Bridge Link Advisors, a firm that advises infrastructure companies.

The key man clause also makes the main fund managers have a “skin in the game”, either by putting their own money in the fund or making them eligible for incentives, known as “carry forward”, at the end of the tenure of the fund, Sangameswaran said. These incentives are usually linked to the total returns on the investments after a fund is liquidated.

“Skin in the game” is a term coined by renowned investor Warren Buffett, referring to a situation in which high-ranking insiders use their own money to buy stock in the company they are running.

Mulye said she also has plans to float an infrastructure fund.

The government has just begun roadshows to attract foreign investors in national highway projects. Kamal Nath, minister for road transport and highways, expects Rs1 trillion investment to build roads.

ICICI Bank is involved in Nath’s roadshows. Mulye is keen to invest in road projects as well as in smaller power projects.

Currently, ICICI Venture is managing at least $2 billion invested  across various sectors.

In an interview with Mint on Tuesday, Mulye said she had told ICICI Bank MD and CEO Chanda Kochhar when first approached for the PE job: “Private equity is an exciting industry and would help me leverage all my learning over the past 16 years.”

Lalita D. Gupte, chairperson of ICICI Venture, introduced Mulye to the senior management at a luncheon meeting in April though she was not entirely new to the organization as in her earlier role as ICICI group chief financial officer she had meetings with the ICICI Venture team.

“Since I have been a part of the ICICI group for the last 16 years, there was also enough familiarity in the system,” said Mulye. “I had to give comfort to the employees and make changes without threatening the existing structure.”

Mulye has brought in new faces in the senior management team. Beside Mulye and Rajeev Bakshi, the core team now consists of five presidents—Sumit Chandwani, Jayanta Banerjee, Prashant Purkar, K.S. Jangbahadur and Parth Gandhi.

Three directors of the firm are Anand Vyas, Vandana Rajadhyaksha and Sunay Mathure.

Most of the senior executives have been with the company since 2001.

Immediately after taking over the new assignment, Mulye reached out to every investor and even sent signed letters to some of them with her photograph. “In the first month, I met 90% of the investee companies,” said Mulye.

She has also been travelling extensively in Europe and the US, meeting large limited partners and high networth individuals.

In many of her meetings, investors expressed concerns on the sudden exit of two key executives—Ramnath and Sudhir Variyar, a senior director who left with the former CEO.

They also wanted to know whether the organization expected more people to leave and whether ICICI Venture could recruit the right people to manage the portfolio in case of an exodus.

Investors also wanted to know Mulye’s background, her view on the portfolio and her vision for ICICI Venture.

“The strengthening of the team and the continuation of ICICI’s association with ICICI Venture as parent and anchor investor was very comforting to other investors. The ICICI brand is very strong,” Mulye said.

To reassure investors that it’s business as usual, ICICI Venture has recently concluded the sale of an investment in RFCL Ltd’s vetnex animal health division to Pfizer for Rs200 crore.

ICICI Venture acquired the stake from Ranbaxy Laboratories Ltd for about Rs50 crore in December 2005.

This investment was made from its first PE fund of Rs1,100 crore floated in 2003. The fund that was to expire in October 2009 has got an extension up to 2011.

“This fund has achieved an internal rate of return of 62%. There are around 10 to 11 companies in this fund, which are in the process of being divested,’’ said Mulye.

PE investments in India have been declining after the global meltdown that started in 2007 and culminated in the collapse of Wall Street investment bank Lehman Brothers Holdings Inc. in September 2008.

During the April-June quarter, PE companies invested $888 million in 44 deals compared with $2.6 billion in 92 deals in the corresponding quarter previous year, Global India Venture Capital Association said in its India Venture Capital Report in August.

Source: Livemint

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