Dutch development bank FMO has invested in about 80 countries worldwide. In India, it has given out more than 650 million euros ($716 million) in loans and equity, mostly to private equity firms. FMO’s chief risk and finance officer Jurgen Rigterink, who will be a speaker at VCCircle’s flagship VCCircle India Limited Partners Summit 2016, shares his views about the firm’s plans for India and the difficulties investors face. Edited excerpts:
Looking at India, how has FMO performed during the past five years?
For us, India is by far the most important country in our portfolio. However, we have an above-average percentage of our non-performing assets in the country as well, with particularly our debt portfolio performing unsatisfactorily. Indeed, we haven’t been as successful in India as we would like. One of the things I would like to focus on at the event is discussing the disadvantages and roadblocks foreign investors face and how to tackle some of these. The more roadblocks we will be able to clear the more encouraged foreign investors will be to increase their exposure to Indian private equity firms and companies.
You have had a long run in India and have seen dismal returns. What challenges do you see for the country to give satisfactory returns?
As mentioned, our non-performing and distressed assets, which include debt and equity, are quite substantial and more than expected. The reasons for the poor performance vary. For example, we see quite a few leveraged companies financed by local banks. For us, this leverage is more risky as access to collateral is more difficult for foreign lenders. As a foreign lender, we do not benefit from the SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act).
On top of that, we feel the legal system is relatively poor, ineffective and can be influenced. We feel there is lack of transparency. But there are many positive things as well. Our investments in the financial and energy sectors are doing well, and these happen to be the focus sectors for FMO.
Also, the economy is expected to continue its growth path and we have high hopes that some of the reforms announced will result in a more stable environment. In short, we will continue to invest in India and I believe it will remain our most important country for many years to come.
How have you changed your strategy in India over these years to mitigate risks?
In India, we would like to focus more on sectors that we know best and have the highest impact, namely financial institutions, renewable energy and agri-business. You will see us investing less in infrastructure and real estate. In fact, we will not invest in real estate anymore since the sector faces corruption and lack of transparency - similar to many other emerging and developed markets. Further, and since we do not have a physical presence in India, we will continue to work with large private equity firms and other partners. We will go less with first-time funds and we would need to see a good track record. We will particularly look at PE funds which can give us the opportunity to co-invest. They will act as our eyes and ears on the ground.
How important is India for investments compared with other Asian countries like China?
China is still on our list because of its regional importance and because of the innovations coming out of the country in, for example, the renewable energy sector. Besides that, China is not necessarily a true focus for us as we rather focus our limited resources on countries where we can have a sound market position like Bangladesh. Many countries surrounding India are important to us. In terms of investments, and as already mentioned, India is clearly the most important country to us. At this point in time, we have almost 8 per cent of our total portfolio invested in India.
What are the challenges you see in India to get high returns on investments?
Valuations have come down globally including in emerging markets, which affects returns. The time it takes to sell an asset or stake in India is longer than anticipated, which affects the internal rate of return.
What are your expectations from the VCCircle Limited Partners Summit 2016?
India is a huge country, so thinking that you know a part of it is a big statement. Hence, networking and listening to others is what I expect to do.