IL&FS-backed infrastructure debt fund targets $1-bn corpus

The infrastructure debt fund (IDF) backed by IL&FS Financial Services and Life Insurance Corp of India (LIC) is planning to raise up to $1 billion (Rs 5,300 crore) initially from foreign and domestic investors.

The fund will use a trust structure (mutual fund route) for this venture, since it provides flexibility to invest in existing and new projects. Besides power, ports and road projects, the IDF might look at healthcare and education projects as well.

Ramesh Bawa, managing director and chief executive of IL&FS Financial Services, said after getting final approval from the Securities and Exchange Board of India, the fund would start raising money in a few months.

In May last year, the company had said it would set up an IDF with a targeted corpus of $2 billion. Asked about reasons to cut the corpus size, Bawa said this was not an investor issue. The board of directors had initially advised raising $1 billion and then scaling up the size (even beyond $2 billion), based on requirements and performance. Given the IL&FS standing, there is adequate interest and it does not face challenge in raising money, especially from global investors, Bawa said.

An independent insurance company official said there was no decision to reduce the size. It is a flexible arrangement, allowing one to expand the corpus at a later date.

Bawa said the firm would approach Japanese and Australian investors, including pension funds. The share of foreign money in the fund is expected to be 50-60 per cent.

The balance will come from domestic investors.

Initially, LIC was to take a 10 per cent stake in the proposed IDF. But now, with a change in regulatory norms for investment, it may take higher stake, Bawa added. LIC has now been permitted to hold up to 30 per cent stake in a company.

LIC makes long-term investments in equity and debt instruments. LIC has invested in various infrastructure companies for facilitating long-term growth in the sector.

As part of this activity, LIC has invested in the equity share capital of IL&FS parent of IFIN. It is the largest equity shareholder in IL&FS with a stake of 25.9 per cent.