 "We are keen to buy lower-risk operating assets: M K Sinha")
IDFC Alternatives Ltd, the 100 per cent subsidiary of IDFC, has assets under management of $2.8 billion across three key asset classes - infrastructure, private equity and real estate. Having received commitments of $644 million last week for its second India-focused core infrastructure fund - India Infrastructure Fund II (IIF2), it plans a corpus of $1 billion. M K Sinha, managing partner and CEO of IDFC Alternatives, tells Reghu Balakrishnan about the company’s plans for the new fund. Edited excerpts:
Which are the areas of investment for the new fund?
The areas of investment are core infrastructure sectors, which include power, roads, ports, airports, transmission lines, pipelines, etc. Operating road projects and power projects continue to be the most attractive investment opportunities because they no longer have associated construction and development risks.
The fund will invest in operational projects with an attractive record of stable revenue generation alongside suitable operating partners, with whom IDFC has an ongoing relationship.
Are there opportunities to buy out distressed assets in the infra and power sectors?
We are not intending to buy distressed assets. We are looking to buy lower-risk operating assets from promoters distressed by high debt and to pay down their debt by selling these assets.
How have your investments from the first fund been? What about exit plans?
These have performed as expected. The four investments in the power sector that we’ve invested during the construction stage are all operational. We see these assets being hugely valuable in the next two to three years — both from a cash-flow perspective on account of increasing tariff and a replacement-cost perspective. The scarcity value of these assets will also be felt two or three years down the line because no fresh investments are going into the sector. That will be the perfect time to exit.
What about projects other than in the power sector?
Our road investments are in the construction stage and are operational. We continue to aggregate operating roads. We will package this into a sizable annuity stream and divest to investors keen on annuity cash flow. We have had some partial exits in our fund in the ports and roads sector.
What’s the view of global LPs (limited partners) on Indian infra space? What changes do they expect?
Global LPs believe in the potential of Indian infrastructure, but are cautious about putting substantial capital at risk given the uncertainty in issues relating to land acquisition, environmental clearance, taxation and policy uncertainty. If these issues are sorted , there will be a deluge of investments in infrastructure. These issues are being addressed proactively by the government, as evident from the Land Acquisition Bill.
Which are the areas of investment for the new fund?
The areas of investment are core infrastructure sectors, which include power, roads, ports, airports, transmission lines, pipelines, etc. Operating road projects and power projects continue to be the most attractive investment opportunities because they no longer have associated construction and development risks.
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At a time when no infra projects has taken off, what will be the investment strategy of the new fund?
The fund will invest in operational projects with an attractive record of stable revenue generation alongside suitable operating partners, with whom IDFC has an ongoing relationship.
Are there opportunities to buy out distressed assets in the infra and power sectors?
We are not intending to buy distressed assets. We are looking to buy lower-risk operating assets from promoters distressed by high debt and to pay down their debt by selling these assets.
How have your investments from the first fund been? What about exit plans?
These have performed as expected. The four investments in the power sector that we’ve invested during the construction stage are all operational. We see these assets being hugely valuable in the next two to three years — both from a cash-flow perspective on account of increasing tariff and a replacement-cost perspective. The scarcity value of these assets will also be felt two or three years down the line because no fresh investments are going into the sector. That will be the perfect time to exit.
What about projects other than in the power sector?
Our road investments are in the construction stage and are operational. We continue to aggregate operating roads. We will package this into a sizable annuity stream and divest to investors keen on annuity cash flow. We have had some partial exits in our fund in the ports and roads sector.
What’s the view of global LPs (limited partners) on Indian infra space? What changes do they expect?
Global LPs believe in the potential of Indian infrastructure, but are cautious about putting substantial capital at risk given the uncertainty in issues relating to land acquisition, environmental clearance, taxation and policy uncertainty. If these issues are sorted , there will be a deluge of investments in infrastructure. These issues are being addressed proactively by the government, as evident from the Land Acquisition Bill.