The $42 billion US insurance and financial services major, American International Group Inc. (AIG), will soon launch an IT industry-specific equity investment fund. "The size of the fund, though yet to be decided, will not be less than $100 million, and investments will be used to fund internet and software outfits. 75 per cent of the fund will be invested in Indian IT companies," discloses Ajay S. Mookerjee, senior executive & vice president, strategic ventures, AIG, New York.
"We at AIG expect India to become an economic powerhouse and, on the whole, AIG intends to invest around $1 billion in Indian ventures," he adds. Currently, AIG operates the following investment funds out of Hong Kong: Asia Opportunities Fund I & II (fund size $1.5 billion each and 30 per cent reserved for investments in India); Asia Infrastructure Fund I ($1.5 billion; $ 450 million for India); Asia Infrastructure Fund II ($1.7 billion; 30 per cent for India - still to be committed) and India Sectoral Equity Fund ($125 million - all committed).
"Our focus is equity investments and not debt instruments. With investments around $250 million in India, we will probably be the third largest equity investor here," Mookerjee remarks.
A major part of AIG's investment has been channelled into telcom ventures such as Modi Telcom, BPL, Hutchison Max. The group will also invest in the Tata's proposed basic services in Andhra Pradesh. In addition, AIG has invested in other infrastructure projects such as Delhi Noida Toll bridge and Indraprastha Gas Distribution.
Mookerjee to play active role in India
Mookerjee (40), an alumnus of IIT Kanpur and holding a doctorate and management degrees in finance and information technology, creates and structures strategic ventures for AIG and reports directly to the financial legend, MR Greenberg, AIG's Chairman. Earlier with GE Capital, USA, handling similar functions but in consumer financing, Mookerjee joined AIG three years ago. "I have structured several deals for AIG in SE Asia, Europe, USA - a retail shopper's card for Colesmeyer, an Australian retail store; bank distribution of insurance products in SE Asia and Chile…" he says. The last is interesting to note, as it will most probably be replicated in India when AIG, partnering with the Tatas, starts its insurance venture -- life and general.
In all probability, Mookerjee will be playing a lead role in structuring the insurance venture in India. "We are sure that AIG will be amongst the corporates that would be licensed first by the insurance regulator," muses Mookerjee. AIG earns more than half of its revenues from the transaction general insurance business and 25 per cent each from life insurance and other financial products. It plans to mop up $500 million premium income within the first five years of starting operations here.
Mookerjee has recently charted AIG's entry into internet based applications for e-commerce by concluding a unique build-operate-transfer (BOT) deal - the first of its kind in the software sector - with Tata Consultancy Services (TCS). Interestingly, from the start, AIG was not interested in outsourcing its software needs or acquiring a small software firm. The reasons: the group doesn't want to risk piracy of its proprietary programmes; it doesn't want to acquire a company since it sees that as uneconomical.
"When you acquire a company, the consideration will include the value of the marketing capability of the acquiree. In our case, we wanted an outfit for our own needs and as such there is no reason for us to pay for the marketing capability of any company," explains Mookerjee. So, after vetting about 30 software companies, Mookerjee decided on the BOT format and zeroed in on TCS.
The TCS deal
The Asian software major, TCS, has a fully developed software facility in Chennai, set up for Rs 100 crore for its Y2K projects. This facility has now been now converted into a dedicated software development centre for AIG and will be operated by TCS till it is ultimately transferred to AIG. "In future, the Chennai facility will also take care of back office work for our other outfits located in various parts of the world," Mookerjee adds.
AIG's India plans
Mookerjee divides AIG's India plans into short and long term. "While the short term goal is to enter mutual funds like Prudential tying up with ICICI, the long term vision is to enter consumer financing and also introduce other financial products such as aircraft leasing, derivatives…." A major aircraft leaser, AIG, interestingly, owns more aircraft than the United Airlines, USA. The group also owns 50 per cent stakes in China Airlines, Taiwan. "The experience in aircraft leasing and operating airlines made us keen to invest in the Tata-SIA project that was spiked by the Indian government," he recalls. In India, AIG has entered into an aircraft leasing deal with Sahara Airlines.
Investing in infrastructure projects aside, says Mookerjee, AIG will be active in funding start-up ventures such as LG Software, and funding corporate restructuring to assist in expansion, merger and acquisition programmes. For example, the group has funded the expansion projects of Owens Corney and Ciba CKB.
"We have recently structured a mega deal worth $100 million for a construction industry major," Mookerjee volunteers. He ducks further queries on this, concluding with a smile, "You will hear about it in a couple of weeks."