Funds to raise $5 bn for Indian infra

When Piramal Enterprises committed $1 billion in a tie-up with Dutch pension fund APG Asset Management last month for investment in the infrastructure sector, it heralded a renewed interest in the sector. Now, three home-grown private fund managers - IL&FS, L&T Infrastructure Finance and IDFC Alternatives - are gearing up to raise $2.5 billion over the next six to eight months.

Besides, another $2.5 billion is expected to be dedicated for India out of the estimated $7.5 billion currently getting raised by global fund managers such as Morgan Stanley Infrastructure, KKR & Co and J P Morgan Chase & Co for their global infrastructure investment funds. When contacted, Morgan Stanley declined to comment.

"We had a first closing of about Rs 500 crore from domestic investors, and we are currently assessing the interest of international investors given the change in their outlook towards India and will begin the formal process after completing the first level assessment," said an L&T Infra Finance spokesperson, whose firm is expecting a $1-billion fund raising.

As the new government takes steps to revive the infrastructure sector, $150 billion of equity as well as mezzanine funding is required to meet its investment target of $1 trillion by 2017. Most of this capital will be required in power, ports, roads and renewable sectors.

"Most of the this investment will be in the form of growth capital including last-mile capital for completing under-construction assets, capital required for building new assets and capital required to fund the cash losses during the stabilisation period of assets, which have just become operational," says Jayesh Desai, co-head (structured investments group), Piramal Enterprises.

Between 2002 and 2012. roughly Rs 9.3-lakh crore was invested in infrastructure in India. Out of this, an estimated Rs 2.8-lakh crore was risk capital. These assets are now largely operational and form a pipeline for capital recycling through replacement investors. According to an estimate by IL&FS, about one-fourth of this - Rs 1-2 lakh crore - has potential yield expectation of 15-17 per cent. Targeting these opportunities, the firm is expected to raise $1 billion in the next eight to 10 months.

"Investing in operational or near-operational assets are an easier proposition at this stage," said Archana Hingorani, CEO, IL&FS Investment Managers. "It is only when growth comes back, when the government comes out with a revised PPP model, when there is more comfort on the regulatory front, would one see a revival of growth infrastructure investing," she added.

IDFC Alternatives, which received binding commitment $644 million in September for its second India-focused core infrastructure fund, is expected to receive commitment for another $500 million soon. The fund was launched in January 2013 with initial target of $1 billion.

India's infrastructure sector has seen a sea-change in the past decade. Now there is diversity in the sector, which means beyond just roads, energy, or ports, there is also opportunity in new areas as waste management and water management.

Besides, now there is a better understanding of development risks and operating metrics and a more developed ecosystem of developers, contractors, and service providers. This is driving the ambition to raise large funds for investments in India.