Infra fund, a money-spinner for IDFC Alternatives

In Sept, IDFC Alternatives raised $644 mn for its second India-focused core infrastructure fund - India Infrastructure Fund-II

IDFC Alternatives, the PE arm of IDFC, has closed its first infrastructure fund, nine-year-old India Infrastructure Fund-I, with a successful return rate of 2.6X. This is significant, given the fact that it has happened at a time when more than $10 billion worth of private equity (PE) money is stuck with various infrastructure companies in India.

The Rs 844-crore fund, which started its first investment with GMR Energy in 2004, has made a 48 per cent portfolio internal rate of return (IRR) and a 32 per cent net IRR after meeting all expenses, according to Satish Mandana, managing partner and chief investment officer of IDFC Alternatives.

Leading portfolios from the India Infrastructure Fund-I include Gujarat State Petronet (GSPL), L&T Infrastructure Development Projects, Healthcare Global (HCG), Leela Venture, Chalet Hotels, Gujarat Pipav Port, Delhi International Airport, International Recreation Parks, SMMS and Central UP Gas (CUGL).

Investment in GMR Energy offered a 6.8X return to IDFC, the highest from its first fund, while GSPL, HCG and CUGL offered returns of 4.5X, 2X and 2.7X, respectively.

“As it takes 8-10 years for generating revenue from infra projects, we decided to split businesses as separate entities, bringing all under a single holding company. After entering GMR Energy, we separated businesses and created GMR Infrastructure as a holding company, which had become a world-class entity now,” Mandana added.

In September, IDFC Alternatives raised $644 million for its second India-focused core infrastructure fund — India Infrastructure Fund-II. According to Mandana, the fund will be utilised for buying out operational assets across the  infrastructure sector in India. The corpus is being targeted at $1 billion.

“Despite the finance minister's request for participation of private funding in India's infrastructure growth, we had found it difficult to raise money for our first infra fund,” said Mandana.

According to him, India should stop depending totally on foreign money for infrastructure growth. “Domestic investors need to re-consider their approach to this segment and instead of shying away, even banks and pension funds are needed to come to the forefront with more investments in the India infrastructure growth story,” he added.