3i Group Plc, Europe's biggest publicly traded buyout and venture capital firm, plans to raise $5 billion for a fund to invest in Indian ports, power plants and roads, two people with knowledge of the plan said.
The initial target will be for a $1.5 billion fund, with the remainder to be raised within five years, the people said, asking not to be identified before an announcement.
3i will use some of the funds in a venture with the government, which has a program to build $320 billion of infrastructure projects to ease bottlenecks. The investment presents the biggest opportunity to date for buyout firms operating in the world's second-fastest-growing major economy.
“There's a lot of capital flowing into India and all that capital needs to find a home which provides continued returns and growth,'' said Manoj Agarwal, executive director of mergers and acquisitions at ABN Amro Holding NV in Hong Kong. “A logical venue is infrastructure.''
Citigroup Inc., Blackstone Group Holdings LP and two Indian finance companies signed an agreement in February to start a $5 billion fund to improve the country's roads, ports and other utilities. India's Infrastructure Development Finance Co., Citigroup and Blackstone will initially invest $250 million, with the balance to be sourced from foreign and local investors.
Agreement Signed
3i signed an agreement yesterday with the government-owned India Infrastructure Finance Co. to provide equity and debt financing for projects in the world's second-fastest-growing major economy, the buyout firm said in an e-mail today.
Chris Rowlands, 3i's Singapore-based managing partner for Asia, declined to confirm details of the fund.
“We may consider raising a fund but it's too early to talk about structures or scale,'' Rowlands said.
The firm, which has been investing in infrastructure projects alongside governments in Europe for the past two decades, plans to use its own funds to invest in power plant, roads and other projects in India, he said.
“We're ready to invest because of our balance sheet resources,'' Rowlands said.
3i will first contribute $500 million to the equity fund and will raise the remaining $1 billion from institutional investors, including those from the Middle East, the people said. 3i plans to increase the fund to $5 billion in five years, the people said.
Higher Returns
The government will contribute debt financing for two-thirds of the cost of projects the 3i fund invests in, the people said.
Investors could receive annual returns of between 16 percent and 20 percent from the Indian fund, compared with 12 percent to 14 percent for similar investments in Europe, the people said.
Prime Minister Manmohan Singh in October doubled his infrastructure budget to $320 billion by 2012, saying upgrading public facilities is crucial to meeting a target of raising growth to 10 percent from an average of about 8 percent. Some $150 billion will come from partnerships with private companies – – the largest sum the government has ever sought from private investors — as India strives to cut its budget deficit.
India, which spends a seventh of China's $150 billion in public works investment each year, according to Morgan Stanley, has boosted spending by a quarter to 992 billion rupees ($23 billion) since April 1 to modernize its transportation and communication links.
Lost Growth
The nation loses 2 percentage points of annual growth because of inadequate power and transportation networks, according to the finance ministry. India produces about 8 percent less electricity than it needs, cutting gross domestic product by a 10th, the ministry estimates.
Highways, which move almost 80 percent of the goods transported in India, account for only about 2 percent of the country's 3.32 million kilometers (2.1 million miles) of roads. It takes an average 85 hours to unload and reload a ship at India's major ports, 10 times longer than in Hong Kong or Singapore, according to government figures.
3i's investments with the government will focus on power, ports, logistics, airports and roads, the buyout firm said.
3i invested $50 million in Mundra Port & Special Economic Zone Ltd. in June, said Anil Ahuja, who heads 3i's Indian business. Mundra Port, owner of India's largest non-government cargo terminal, plans to raise as much as 18 billion rupees ($421 million) in an initial stock sale, people with direct knowledge of the offering said in March.
India Infrastructure Finance Company was incorporated in January last year to provide financial support to infrastructure projects in India, 3i said in the statement.
3i is expanding in Asia, home to the world's two fastest- growing major economies, as competition from other buyout firms intensifies in Europe.
Source : Bloomberg