Blackstone, Citi in $5 bn core fund

State-owned India Infrastructure Finance Company Ltd (IIFCL) has tied up with Infrastructure Development Finance Company (IDFC), and global equity investors Citigroup Inc and Blackstone Group to launch a $5 billion infrastructure fund.

"The India Infrastructure Financing Initiative" aims to deploy about $2 billion in equity capital and $3 billion in long-term debt financing, with maturities exceeding ten years.

To start with, IDFC, Citi and Blackstone will jointly invest $250 million by April-May. The balance is expected to come from international investors and selected domestic institutional investors, including IIFCL.

"We expect equity funds to be raised over 18 months, mostly abroad. We expect the process to be launched the week after next," said Rajiv B Lall, managing director & CEO, IDFC.

The equity financing, managed by IDFC, will be for greenfield, brownfield and operating projects, primarily in roads, power, airports, ports, and industrial and commercial infrastructure.

The debt financing will be managed by IIFCL in tranches over three years for projects appraised by IDFC and certain banks.

Finance Minister P Chidambaram, who was present at the signing of the agreement, said, "This initiative is an important milestone in our search for innovative solutions to meet the vast challenge of developing India's infrastructure sector."

By some estimates, India requires about $320 billion in the next five years to develop its infrastructure.

IDFC Chairman Deepak Parekh, who heads the infrastructure financing committee set up by the finance ministry, said money was being raised overseas as funds were not available domestically to fund projects like ultra mega power projects.

Each ultra mega power project required about Rs 20,000 crore, he said. "We are taking this initiative so that Indian entrepreneurs can access these funds," Parekh said.

Citigroup Chairman & CEO Charles Prince said the infrastructure initiative had resulted from a request made by the government of India at the Indo-US CEO Forum meeting held in December 2006.

The agreement was signed by Lall, Sanjay Nayar of Citi, S S Kohli of IIFCL, and Robert L Friedman from Blackstone.