SBI To Go Ahead With Infra Fund; Revises Target Corpus

By Nimesh Sharma

  • 03 Nov 2008

Even in the current global economic turmoil, SBI is planning to go ahead with core sector fund. State Bank of India (SBI) is planning to launch an infrastructure private equity (PE) fund of $1 - 1.5 bn with Australia's Macquarie Group and International Finance Corporation (IFC), World Bank's PE arm. But the fund seems now to be looking at a much lower target of $1-1.5 bn as against the earlier $2 billion, reports Business Standard. The three partners had signed a JV agreement about a week back in furtherance to a MoU signed in April this year.

This comes as many funds are revising their fundraising targets, making them more realisitic as investors are hard to come by. Reliance Capital and LIC Housing Finance have both revised their target corpus to a much smaller one. It is especially hard for the first time funds, as investors are now preffering to go with funds who have a track record.

A total of $450 mn in anchor investment will be contributed together to operationalise the fund, and they will raise further capital from both domestic and international institutional investors to increase the total corpus to $2 bn. SBI and Macquarie Capital will hold 45% each, while the IFC will hold the remaining 10%. The bank is awaiting regulatory clearance from RBI. RBI had earlier expressed certain reservations about the PE business proposed by SBI leading to delayed launch of the fund.

SBI chairman O P Bhatt is expected to be the chairman of the company, while CEO and MD will be appointed by Macquarie Capital. SBI has already been managing a $100 mn VC fund with Soft Bank of Japan since 2006. In May this year, SBI was mulling to float a private equity (PE) real estate fund with an affiliate company of real estate firm Unitech. Prior to this, SBI had bought a 20% stake in February in Mumbai-based Sage Capital Fund Management's $250 mn special situations fund.  

SBI has been a late entrant in PE. Its biggest competitor ICICI Bank is present in the PE space for 20 years now through its subsidiary ICICI Venture Funds Management which has become a large PE player in India.  

Among the public sector banks, Bangalore-based Canara Bank was the first to float a PE arm called CanBank Venture Capital Fund in 1989. Two months ago, IDBI sought permission from RBI to foray into the PE business by targeting a corpus of Rs 1,000-1,500 cr for its first fund. In July, Yes Bank & US based PE firm Global Environment Fund (GEF) decided to join hands for raising $300 mn for South Asia Clean Energy Fund.

In July only, Rabobank Group, IFC, Finance for Development (FMO) and Deutsche Investitions – und Entwicklungsgesellschaft (DEG) announced a $100 mn PE fund to invest in agribusiness firms in India. In recent weeks, few companies like Reliance Capital and LIC Housing Finance had planned PE funds, but later said that they would kick off operations with smaller funds because fund raising was not easy in this gloomy market.

SBI is also in final stages to finalise the terms of its general insurance venture with Insurance Australia Group (IAG) and is seeking RBI approval.