Indian infrastructure specialist IDFC Private Equity is raising a new $700 million fund to buy stakes in firms expected to thrive as the country modernises its rag-tag power and transport networks.
IDFC's managing director for investment, Satish Mandhana, told Reuters the fund would close in the next two to three weeks, with around 85 percent of the money coming from abroad.
Foreign investors are increasingly drawn to Indian infrastructure, as the government estimates about $500 billion will be needed to build new roads, ports, airports and power plants by 2012 to keep pace with a fast-growing economy.
Around 30 percent of that spending is expected to come from the private sector, with the rest split between the central and state governments.
“Our model is to invest into companies with a portfolio of assets,” Mandhana said in an interview on the sidelines of a conference in Hong Kong. “We're trying to generate private equity returns, not infrastructure returns.”
The fund — IDFC's third — will aim for internal rates of return of about 20 percent, while holding infrastructure assets generally gives an annual yield of 12-13 percent, Mandhana said.
IDFC's first, $190 million fund, made 11 investments and has divested four, and a second, $440 million fund is almost spent.
“Current interest is beyond $700 million, so we might go up to that,” Mandhana said of the planned fund, which will look for companies involved in clean technology, power and transport.
Because India wants to increase installed power capacity by 50 percent to about 200,000 megawatts, many new power generation firms needed growth capital, Mandhana said.
IDFC had invested previous funds in a photovoltaic cell manufacturer and Quipo Telecom, which rents communications towers to telecoms operators and needed to raise more capital at a time when around 8 million new cellphones are sold each month.
IDFC is competing with the likes of U.S. investment banks JPMorgan, Goldman Sachs to channel foreign investor money into Indian infrastructure.
Last week, private equity firm 3i Group said it had raised $1.2 billion for Indian infrastructure and State Bank of India and Australia's Macquarie Bank also said they planned to raise a similar $2 billion fund.
Mandhana said investors should be “reasonable” with their return expectations, because infrastructure funds could not be seen by the Indian public and politicians to be making too much money.
“If a deal is too lucrative, you can run into trouble,” he said, adding that state governments, for example, could easily alter power purchase agreements if they were seen as too favourable to the producer.
Source: Reuters