IDFC arm to raise $700 million

The infrastructure funding story is getting better and better. After raising $192 million and $440 million for its first and second funds respectively, IDFC Private Equity, the PE arm and wholly owned subsidiary of Infrastructure and Development Finance Corporation (IDFC), is expected to raise $700 million for its third fund.

According to industry information, the company is expected to take a call on the size of its third fund by the end of December 2007, when 75 per cent of its second fund will be committed. A spokesperson could not be contacted for official comments.

IDFC PE was set up in 2002 and in a span of five years has entrenched itself in the PE sector by funding notable deals such as Manipal Group's education and healthcare expansion, Gujarat Pipavav Port, GMR Infrastructure besides Hotel Leelaventure.

Industry information further indicate that global Fund of Funds as Thomas Weisel is expected to have shown further interest in the third fund being planned by IDFC PE. In addition to this, NEA Ventures, an existing investor is also expected to come back.

IDFC PE is gunning for the third fund with the underlying agenda being the green infrastructure projects besides the existing focus on social infrastructure (healthcare, education), rural infrastructure (food processing, distribution) and urban infrastructure (SEZs, waste management, water supply, real estate and hotels). ¿In addition to this, IDFC PE is expected to continue to scan investments in power, telecom, oil & gas and transportation,¿ an industry source detailed.

The phenomenal interest in funding infrastructure in India by global funds such as Blackstone, Citigroup, 3i in addition to the Indian giants such as IDFC, IIFC and IFCI, is being driven by several factors.

According to industry players, the infrastructure opportunity in India is large, with an estimated $380 billion required over the next five years in power, roads, urban infra, railways, airports, etc.

"The awareness of improving infrastructure at the Centre and the states has resulted in increased government focus and its willingness to play a larger role through Public Private Partnerships. Policy liberalisation and an improved regulatory framework has seen the rise of mid size entrepreneurs who are passionate about building world class infrastructure that is economically viable," said an industry player.

User fees have also become a reality as in the case of toll roads. And finally there have been success stories of generating financial returns in infrastructure including successful IPOs of Bharti Televentures, GMR Infrastructure, Suzlon, Gammon, etc.

According to IDFC PE, it typically invests between $15 million and $55 million in various projects, which are highly scalable.