Sebi registered venture capital and private equity (PE) funds may be allowed to bid for infrastructure projects if the government accepts the recommendation of the Deepak Parekh committee on infrastructure financing.
As of now, these funds cannot bid for projects, as they do not meet conventional qualification criteria such as gross revenue, net worth or net cash accruals.
To enable them to bid for projects in the power, roads, ports and airports sectors, the committee has recommended that the criteria to qualify them should be the uncommitted investible funds managed by these entities and available for deployment.
The final Deepak Parekh report was submitted last week to the finance ministry. “Given that financing for the infrastructure sector is essential to sustain the growth story, the move to enable venture capital funds to invest in these projects is in the right direction. However, the criteria that should be used for selection should be the funds committed to India instead of total uncommitted investible funds,” Nalin Kumar of JM Financial group said.
In addition, to ensure that funds actually flow into the project for which the PE fund has successfully bid, the VC/PE fund must make the requisite equity contribution to the project or ensure that financing can be tied up for the project, Mr Kumar added
A venture capital fund is a pooled investment vehicle that primarily invests the financial capital of third party investors in enterprises that are too risky for the standard capital markets and bank loans.
Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships.
Thus, at any given point in time, a venture capital or private equity fund can only show its total uncommitted i.e unused investible funds available for deployment, as an indication of financial soundness. According to current guidelines for qualifying bidders for infrastructure projects in airport, road and power sectors under the public-private-partnership (PPP) model, companies with a net worth of less than 15% of the total project cost are not allowed to bid for such projects.
Such a stipulation automatically disqualifies venture capital and PE funds since net worth is not a meaningful concept for them.
Says PwC executive director Amrit Pandurangi, “If this recommendation comes through, private equity funds will be encouraged to bid directly for infrastructure projects at the inception stage on the back of their finances. As of now, the only way in which these venture capital funds can participate in infrastructure projects is by committing funds in a company that is bidding for a project.”
Source : Economic Times