Plans to invest, operate, not own; wants to take management fees and a share of higher returns.
SREI Infrastructure has planned to launch a private equity (PE) fund for the infrastructure sector. The company is targeting $500 million to $1 billion (Rs 2,300-4,600 crore) for this fund.
According to highly placed sources, it is in discussions with investors, both domestic and foreign PE funds, to raise money to make equity investments in infrastructure projects and companies.
SREI is to be an anchor investor for the planned fund and manage it, though not a major owner. “Basically, we would be a deal arranger for this fund. On a daily business, we evaluate many project proposals for our equipment finance and project finance business. We evaluate these for debt financing; with this fund we can even provide equity. The liability of our company to the project or company does not increase (since they service both debt and equity), because we do not own the fund all by ourselves,” a top official told Business Standard.
The SREI Group has various interests in infrastructure like project development, infrastructure advisory services and project financing. Its major interest is in financing various equipment from civil construction machinery to mining equipment, as loan against assets. SREI has over 20 years experience in equipment financing and has around 12,000 clients, from small and medium-sized companies to infrastructure majors.
It will receive fund management fees for the fund and is to evolve a model where it would fix benchmark returns. If an investment crosses the said return, SREI and the infrastructure fund would share the incremental returns. “This fund becomes yet another tool to serve our customers. We already have debt offerings and equity offering will add to it,” said the source.
SREI already has experience in handling two proprietory venture capital funds, with assets of under management of Rs 47 crore and Rs 18 crore each. It also has an Infrastructure Project Development Fund (IPDF) targeted to providing financial assistance to small infrastructure projects, with assets under management of Rs 90 crore. It also has a PE fund called Millennium Growth and Development Fund, with a corpus of Rs 393 crore.
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The infrastructure growth story in India has attracted both domestic and international financial institutions, which have started PE funds focused on the sector. State Bank of India and Australia’s largest, Macquarie, started a $1-billion infrastructure fund in 2009. British PE player 3i has a $1-billion infrastructure fund, too, and has invested in companies such as Adani Power and Soma Enterprises. JPMorgan Chase, too, has started a $2-billion infrastructure fund, with a focus on Indian infrastructure investments.
Financial investors start infrastructure funds to tap long-term investment opportunities in the sector. While PE players, on an average look at an exit after five years, infrastructure funds look at an investment horizon of seven to eight years or more, depending on the fund strategy. Some funds have started investing in infrastructure projects as opposed to companies, and are even partnering with companies at the bidding stage.
The PE buzz in the infrastructure sector has increased in the last few months. Recently, Tata Power has roped in Olympus Capital into its coal joint ventures for $300 million. The Blackstone Group, an American financial services company, has invested Rs 275 crore in Monnet Power. GMR has brought in two PE firms, Singapore-based Temasek Holdings and IDFC Private Equity, as partners into its energy vertical. GVK is also known to be in talks with PE players to induct a partner into its energy business.