Fund-raising to the tune of Rs 8,500 crore underway.
Sensing huge opportunities, a clutch of private equity (PE) players are rushing in to raise funds for the infrastructure sector.
At present, close to Rs 8,541 crore is in the process of being raised. Out of this, Rs 6,800 crore is being raised by India-dedicated infrastructure funds, according to data by Preqin, a global firm that tracks PE and alternative assets.
The latest to join the bandwagon is Principle Europa Indian Infrastructure Fund, led by Shailesh Pathak, a former senior director at ICICI Ventures. The fund is aiming to raise $1billion (around Rs 4,800 crore) from overseas investors, mainly endowments and pensions, to invest in early-stage greenfield infrastructure projects.
“The Indian infrastructure story needs equity at early stages and very few infrastructure funds operate in this space. This is why Principle Europa Indian Infrastructure has been appreciated by LPs (limited partners). India’s infrastructure sector has the potential to yield much higher returns for sophisticated investors who are close to the ground,” said Pathak.
Others in the process of raising funds for the sector are India Infrastructure Advanatge Fund, Q India PE Fund, Eredene Capital India Infrastructure Fund and Alcazar Capital India Fund. Then there are other emerging markets and Asia-focused infrastructure funds for whom India is an important investment destination. Such funds include JP Morgan Asian Infrastructure Fund, Babcock & Brown Asia Infrastructure Fund, and Challenger Mitsui Emerging Markets Infrastructure Fund.
UTI Asset Management Company recently raised a $500 million (around Rs 2,400 crore) fund with Kuwait-based Noor Finance and Germany’s HSN Nord Bank. One of the largest infrastructure fund is being raised by SBI-Macquarie with a corpus of $2 billion (Rs 9,600 crore). State Bank of India Chairman Om Prakash Bhatt said the corpus could rise to $3 billion (Rs 14,600 crore).
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“We are bullish on infrastructure services and that is where our $400 million (around Rs 1,900 crore) fund will invest. The demand clearly outstrips supply. We look at infrastructure-enabler companies with a huge growth potential. An IRR (internal rate of return) of 20 per cent or more should be possible with this fund,” said Axis Private Equity CEO Alok Gupta.
According to a Goldman Sachs report, India will need $1.7 trillion over the next decade for infrastructure and the major areas where this spending will happen are roads, power, railways and irrigation. “The large supply-demand mismatch in infrastructure implies that there is a significant scope to increase capital. India’s overall ROE (return on equity) has been higher than the region, suggesting higher returns on capital,” said the report.
Some recent deals in infrastructure were QIPs (qualified institutional placements) by listed infrastructure players in which a number of PE funds participated. These included issues by Hindustan Construction Company, GVK Power and Infrastructure and PTC India.
Infrastructure deals still form a small part of the total PE deal flow. According to Grant Thornton’s half-yearly deal tracker, only 11 out of a total of 93 deals related to the infrastructure sector. The combined value of such deals was $420.3 million (around Rs 2,000 crore), which is 14.5 per cent of the total deal flow of $2.89 billion.
Some prominent financial institutions that have invested in infrastructure funds are Orix Capital Corporation, Indian Overseas bank, Punjab National Bank, Asian Development Bank, General Insurance Corporation, Union Bank of India, the CDC group, and various pension funds.
Bhavesh Shah, executive director, JM Financial, said, “There is a lot of activity on the infrastructure side. But having said that, execution and revenue projections remain major challenges. It is a different asset class altogether and hence needs a different risk appetite.”