MUMBAI, March 3: Commonwealth Development Corporation (CDC) is in the process of swinging around its entire $300 million portfolio from predominantly straight loans to an overwhelming proportion of private equity.Speaking to The Financial Express, Donald Peck, representative of CDC's South Asia Fund said that in the past, when development banking imperatives dominated the institution's major aims, as much as 75 per cent of CDC's portfolio was accounted for by straight loans, whereas over the last three years, the general policy direction had been to invest in high-risk equity.
Since loans are difficult to get out of very quickly, the process of changing the investment composition completely to around 70 per cent private equity (both listed and unlisted) will take up an interregnum of 10 years.
Peck said in the past, with the more cautious, development-oriented strategies, the historical average returns on capital employed have been in the region of seven to 10 per cent. But in future, CDC'sreturn on capital employed is expected to rise to an average figure of 14 to 15 per cent.
"This is not to suggest that we are entirely moving away from public concerns," said Peck, "even as a profit-driven institution, we are committed to very strong ethical and environmental values."
India is by far the largest emerging market in which CDC operates (it is not present in China). It has entered into the business of raising and investing a series of regional funds. Its most recent example is the raising of the South Asia Regional Fund, which it has raised from a range of countries including India, Pakistan, Bangladesh, Sri Lanka, Mauritius, Malaysia, Brunei and Singapore.
The investors in this fund are banks and financial institutions. CDC Financial Services Ltd itself has contributed as much as $50 million to the initial closing amount of $108.75 million (the fund expects a second closing in June 1998 at $150 million). The second largest investments have come from Seletar Fund Investments Pte Ltd ofSingapore and Industrial Development Bank of India with $10 million each.
Other Indian institutions which have subscribed to the fund include State Bank of India and Unit Trust of India. CDC has also set up similar funds for regions such as Sub-Saharan Africa and the Pacific region to the east of Indonesia.CDC, originally set up as a predominantly development bank 50 years ago, has operated in India for about 11 years, and invested mostly in private sector equity across a cross-section of sectors. Its main source of finance has been retained earnings. The institution is expected to be privatised over the next year with 60 per cent of the equity expected to be offered to the public.CDC is mainly involved in venture capital finance, infrastructure finance, and even manages businesses in regions where management quality is not uniformly up to certain standards (in eastern and western Africa, for example, as well as public financial institutions).
As a matter of fact, with extensive interests in palm oil inSouth-East Asia, the institution is one of the five largest players in the business.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
