NEW DELHI: The world’s largest India-dedicated infrastructure fund, UK-based 3i, is pulling out of India and exiting all its portfolio companies as the country has failed to meet investors’ expectations due to slowing growth and a volatile policy environment worsened by a depreciating currency.
Though other global funds dedicated to Indian infrastructure are unlikely to join the ‘Quit India movement’ for now, experts say investors’ focus is shifting to secondary market transactions with more realistic valuations instead of fresh investments in new projects. The $1.2 billion 3i India Fund had invested around $875 million in seven firms but hasn’t been able to exit a single one in six years. Adani PowerBSE -2.89 % is its only holding that got listed on the Indian bourses (in 2009), but the value of 3i’s stake in the firm purchased for $227 million in 2007 has dropped by around $85 million according to ET’s calculations.
Blaming the weaker performance of its India Infra fund’s investments for denting its European portfolio’s strong returns, 3i Infrastructure Plc’s chairman Peter Sedgwickhas told investors that its board has decided to make no new investments in India. 3i’s board has also decided to
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gradually sell all its India holdings (see graphic), the proceeds from which would not be re-deployed in the country.
“While the case for infrastructure development in India remains unaltered, private infrastructure investment in India has faced more political, market and macroeconomic challenges than we expected when we initially made our commitment to the India Fund in 2007,” 3i said in a statement issued last Thursday. As of March 2013, the fund’s India investments were valued at about 80% of their cost in dollar terms, it said. “Although it is no longer investing in India, 3i is still considered the largest purely India-focused infrastructure fund ever raised,” said Nicholas Jelfs, senior analyst at Preqin, a UK-based research firm that focuses on alternative assets such as hedge funds, PE funds and infrastructure funds. Slowing macro-economic headwinds and the specific challenges facing infrastructure projects across sectors, have forced global money bags to moderate their expectations from the Indian market, said experts.
“This has been a learning phase of sorts for such infrastructure funds, who have now realised that Indian assets may not deliver higher returns than developed markets,” said Vishwas Udgirkar, partner at consultancy firm Deloitte. “Everyone is now taking a fresh guard on Indian projects as they no longer have the risk appetite to invest without a realistic assessment of longterm prospects,” he said.
Though they had aggressively invested in many projects in recent years, a lot of India-focused infrastructure funds are still sitting on cash. Some of those foreign funds may explore opportunities outside India, like 3i intends to do, but most are likely to use the current lull in the sector and the economy to buy existing assets at cheaper valuations.
“The pipeline of new projects to invest in has dwindled as developers have stretched themselves from aggressive bidding in the past and bankers have turned strictly cautious,” said Udgirkar.