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Mumbai: In its first investment, the private equity (PE) arm of Anil Ambani-controlled Reliance Capital Ltd has purchased a stake worth Rs100 crore in Pathways World School, a group of schools for students from kindergarten to Class XII. The size of the stake acquired by Reliance Equity Advisors (India) Ltd hasn’t been disclosed.

Reliance Equity Advisors is seeking to tap annual growth in the education sector that its chief executive officer Ramesh Venkat estimates at 50-60%.

A recent report by education-focused PE fund Kaizen Management Advisors Pvt. Ltd has estimated that the so-called K-12 segment (kindergarten to Class XII) is a $20 billion (around Rs89,000 crore) business.

"Also, there are a lot of government initiatives and policy changes which are attracting investment in the sector," Venkat said.

"We are seeing active participation by domestic players in PEs. As the overseas sources have not yet revived, raising capital from abroad can be difficult. PEs will soon shift their focus to India since the market is untapped and opportunity is huge," Venkat said.

The ministry of human resource development under Kapil Sibal is aggressively pushing reforms in the education sector while parents are increasingly seeking to put their children in private institutions regardless of the high fees they charge.

Pathways, which offers the International Baccalaureate curriculum, will use this money to expand its present capacity and set up two more schools in the national capital region (NCR) centred on New Delhi, said Prashant Jain, promoter-director of Pathways, which is also looking to diversify into higher education and is working on a university model.

“The plans are still being drawn and the land for this has already been purchased,” said Jain.

The cash raised from the stake sale will fund Pathways’ expansion plan, for which the company has been seeking to raise a total Rs350 crore. It plans to raise the remaining Rs250 crore through debt funding.

Long-term plans include expanding into other parts of India and venturing abroad as well as making acquisitions. According to its website, it runs one school in the NCR and is building two more.

Venkat said Reliance Equity Advisors wanted to invest in an institution that was “reasonably diverse” with interests in schools and higher education.

“In Pathways, their existing expansion plans for the next two-three years has scale of a different order,” he said.

According to the report published by Kaizen Management in January, the K-12 segment consists of approximately one million schools. Of an estimated 343 million children who qualify for the K-12 segment, only 219 million are enrolled.

The K-12 segment is characterized by high upfront capital investment but relatively low operating expenses. Successful schools catering to the segment have significant pricing power, says the report.

“There are approximately one million schools in India, of which 900,000-plus are government-run and have poor quality infrastructure. So this space needs private investment,” said K.K. Iyer, partner and managing director of India Equity Partners, which invested Rs172 crore in IL&FS Education and Technology Services Ltd.

Some of the recent investments in the education space include Rs200 crore by Premji Invest—the investment venture of information technology company Wipro Ltd‘s chairman Azim Premji—in Manipal Education, Rs60 crore in Resonance Eduventures and Rs25 crore in IMS Learning Resources Pvt. Ltd by Milestone Religare Investment Advisors Pvt. Ltd and Rs100 crore in FIITJEE by Matrix Partners India.

Reliance Equity Advisors (India) Ltd (REAIL), the private equity arm of Reliance Capital Ltd, today said it has invested Rs 100 crore in Pathways World School. This is the first private equity investment made by REAIL.

We feel the education sector offers tremendous growth potential and is poised for rapid growth in the next few years," REAIL CEO Ramesh Venkat told PTI.

"Going forward, we would be looking at more such emerging opportunities in this sector," Venkat added.

He said the fund has a robust investment pipeline and is actively looking at logistics, hospitality and other sunrise sectors.

Venkat declined to share the size of the fund.

However, market sources said REAIL has raised a corpus of Rs 1,500 crore through a round of third party fund-raising in its Reliance Alternative Investments Fund – Private Equity Scheme 1, from banks, institutions and high networth individuals.

They said REAIL is expected to go in for another round of fund raising during the next quarter.

While, REAIL officials declined to comment on the size of the next round of fund raising, they said it is expected to significantly increase the corpus this year with additional domestic and international fund raising.

REAIL, a wholly owned subsidiary of Reliance Capital, is the Investment Manager of Reliance Alternative Investments Fund – Private Equity Scheme 1 (a private equity fund).

The fund was launched for making investments in sunrise industries in India.

Reliance Equity Private Advisors (India) Ltd (REAIL), the private equity (PE) arm of Reliance Capital, has made its first PE investment of Rs 100 crore into the parent company of Pathways — an education provider — after having raised close to Rs 1,500 crore in its fund raising exercise over the past six months.

While the company declined to comment on the total amount it has raised, banking sources confirmed that the amount raised as of now is around Rs 1,500 crore.

“We received participation from 12 leading banking institutions in India and are in talks with 8-10 others to raise funds and will invest the funds as a continuous process,” said Ramesh Venkat, CEO, REAIL.

Going forward, the PE fund is looking to raise funds from foreign markets in the next couple of months as it wants to take advantage of the opening up of foreign markets after the global financial crisis.

"We will look to raise funds from the foreign institutional investors (FIIs) who typically come from US, Europe, Hong Kong, Singapore and some from Middle East and are confident to do well," said Venkat.

While the company declined to assign a target amount that it plans to raise and the return its expects, it said that it would invest the funds in the sunrise sectors of the Indian economy.“We see high growth in the education sector as the private participation in the sector is increasing dramatically. Also we are looking at logistics andtransportation, hospitality and healthcare,” said Venkat.

Large Indian banks and financial institutions such as State Bank of India (SBI), Life Insurance Corporation (LIC), General Insurance Corporation (GIC), Bank of Baroda (BoB) and IDBI Bank have helped Reliance Equity Advisors, which is of the Anil Dhirubhai Ambani Group, mop up around Rs 1,500 crore.

While this has been tied up in less than three months, the company is expecting to raise another Rs 500 crore over the next two weeks, Reliance Equity Advisors Chief Executive Officer Ramesh Venkat told Business Standard in an interview. He, however, did not disclose the investors.
Although the company has not announced a closure date, Venkat is confident of achieving the target.“We plan to make two investments every quarter. The average deal size will remain around Rs 150 crore. We will soon start with the second round of fund raising after investments from this fund picks up,” Venkat said.

While the large banks and insurers such as SBI, BoB, IDBI Bank, LIC and GIC have invested around Rs 100 crore each, some of the old-generation private banks, which are among the dozen investors, have chipped in with Rs 30-50 crore each.

Sources said Enam and JP Morgan have also chipped in.

“We are seeing active participation by domestic players in PEs. As the overseas sources have not yet revived, raising capital from abroad can be difficult. PEs will soon shift their focus to India since the market is untapped and opportunity is huge,” Venkat said.

However, he mentioned that Reliance Equity Advisors was not averse to raising funds from abroad. It planned to invest in education, logistics and infrastructure services among others. It will make its first investment in August. The company has a pipeline of around 12 companies. In the first two companies, it will make an investment of Rs 150 crore each.

MUMBAI: The Anil Ambani Group targets to raise Rs 2,000 crore through a private equity fund nearly a year after it announced its plan to enter this space. The fund has a greenshoe option for an additional Rs 1,000 crore. Reliance Equity Advisors (REAL), a wholly-owned subsidiary of the group’s financial services arm Reliance Capital, has begun selling the fund privately to high net worth individuals (HNIs) and financial institutions (FIs).

REAL CEO Ramesh Venkat told ET that the target was to raise money equally from HNIs and financial institutions, as opposed to the common practice of domestic PE players raising most of the fund in offshore markets. “Private equity in India has matured as an asset class over the past decade. However, participation of local HNIs is not very big in this sector. Our aim is to provide an opportunity to this investor class to participate,” he added.
Domestic institutions such as SBI, PNB and LIC are expected to invest in the fund. In order to ensure good participation of HNIs, REAL has also tied up with 10 banks for distribution of the fund. The list includes ICICI Bank, HDFC Bank, Axis Bank and Kotak, and financial services firms such as Enam, Religare and Anand Rathi.

Post the fund’s closure, which is expected within four to six weeks, the group’s entire PE operations would be routed through REAL. It means, Reliance Capital will stop playing the role of a private equity investor.

The investment focus of the proposed fund will be on growth and consolidated capital, buyouts, minority investment and acquisition financing. The fund will invest in sunrise sectors such as services, retail, logistics, media, infrastructure ancillaries and healthcare with a ticket size of Rs 125 crore-375 crore.

Investors can participate in the fund with a minimum commitment of Rs 50 lakh. Average holding period for investors would be three to four years.

The meltdown in the global financial sector that started in September last year delayed REAL’s plan to float two funds - one each in India and Mauritius. REAL had received regulatory approval to build an initial corpus of $1 billion (about Rs 4,800 crore at current exchange rates) in August last year.

The Indian PE sector, which has recorded a total investment of Rs 56,000 crore in calendar year 2008, is fragmented. It has big international players on one end, and small domestic funds, on the other. Last year, it saw total number of investments of 292, marginally higher than that in the same period in 2007.

MUMBAI: Anil Ambani has quietly entered the fledgling private equity space. His financial services arm, Reliance Capital, has launched a whollyowned subsidiary, Reliance Equity Advisors Ltd (REAL), to offer the entire bouquet of private equity services. Ramesh Venkat, group CFO of the Anil Dhirubhai Ambani Group (ADAG), has been given the additional responsibility of spearheading REAL.

To begin with, REAL has put in place a 15-member advisory team and received regulatory approval to build an initial corpus of $1 billion. Of this, ADAG will contribute 15-20% while the balance will be mobilised by two linked funds, one based in Mauritius and the other in India.

Mr Venkat told ET that REAL has started talking to investors to put together a $1-billion fund. “The initial response has been very good. There is good investor appetite for our fund. We expect to close the fund in a few months,” he said. Mr Venkat is a director of REAL.

Mr Venkat said the fund will focus on sunrise sectors such as services, logistics, realty and pharma. The ticket size of investment will be in range of $15-100 million. In addition to providing growth capital and means for financial restructuring, REAL will lend money and expertise to help Indian companies in acquiring foreign assets.

This initiative is completely different from Reliance Capital’s PE avatar. While Reliance Capital has been acting as a proprietary PE investor, REAL is an advisory PE player. In other word, Reliance Capital invests with its own money while Reliance Equity Advisors uses money from investors to put in companies.

Like any other PE advisor, Reliance Equity Advisors will earn fees against its advisory services. The scale of operations is different as well. Reliance Capital had a maximum PE investment of Rs 2,000 crore while REAL will kick-start its operations with a $1-billion fund. Some other funds will be launched once the first fund is saturated.

We are absolutely open to the idea of investing in listed companies, but from a PE perspective and not from a short-term view, says Ramesh Venkat, chief executive officer of Reliance Equity Advisors

Mumbai: The next few months we will see opportunities that somebody told me is seen once in several lifetimes. Most of us will never see this in our lifetime or in our careers again,” says Ramesh Venkat, chief executive officer of Reliance Equity Advisors, a Reliance-Anil Dhirubhai Ambani Group (R-Adag) company that is the latest entrant in the private equity (PE) business.
Venkat was earlier involved in raising funds abroad and in India for R-Adag. Between meetings at R-Adag’s group headquarters in Ballard Estate and a more modest setting in Nariman Point, Venkat says in an interview why entering the PE space now was the best thing that could have happened to the company. Edited excerpts: