SBI, Macquarie launch infra fund, hope to raise $2-3 billion

At a time when private equity players are finding it difficult to raise resources, the country’s largest bank, State Bank of India (SBI), and the Macquarie Group today said that they have tied up over $1 billion for an infrastructure fund. In fact, both hope to raise the corpus to $2-3 billion during the course of the year.

Macquarie Group is a global provider of banking, financial, advisory, investment and funds management services.

While announcing the launch of the Macquarie-SBI Infrastructure Fund (MSIF), a joint statement said that global investors have committed $887 million to the fund along with a direct co-investment commitment of $150 million by SBI, bringing the total capital raised to $1.04 billion.

MSIF is managed by the SBI-Macquarie joint venture, along with the International Finance Corporation (IFC), the private sector lending arm of the World Bank. IFC is a minority shareholder and cornerstone investor in MSIF. The MSIF partners have committed to raising $150 million each, thereby bringing in a total of $450 million of sponsor commitments, the statement said.

A total capital of about $2-3 billion is likely to be raised this year, together with Indian institutions. Foreign institutions will invest through MSIF, whereas Indian institutions will invest through a domestic entity called the SBI-Macquarie Infrastructure Trust (SMIT). Together, MSIF and SMIT will invest into infrastructure projects in India.

“Investments will be made in traditional infrastructure assets that generate long-term identifiable cash flows that exhibit essential service characteristics. These include roads, sea ports, airports, power generation, transmission and distribution, gas distribution, telecommunications and logistics businesses. Investments will include greenfield projects as well as established operating businesses,” the statement said.

An investment pipeline has been identified and is under assessment. The sponsors anticipate further investment opportunities over the next two to three years, which corresponds with the investment period of MSIF, it added.

“As per the Planning Commission of India estimates, the country will need close to $500 billion in infrastructure investments over the next five years. Funding of this magnitude cannot be supported domestically alone and must be supplemented by other sources of capital. Traditional methods of debt financing must be supported with equity funding. SBI aims to bridge this funding gap by establishing this fund and bringing in international expertise through our joint venture with Macquarie,” said SBI Managing Director R Sridharan.

There are already dedicated funds looking at the infrastructure space with IDFC Project Equity, where IDFC and Citi are the sponsors. It has already raised $880 million as part of its $5-billion fund-raising plan and intends to raise another $1 billion by 2011. This would include an equity component of $2 billion, while the rest will be debt-raised by leveraging assets.

In recent months, due to the global downturn, fund-raising has become difficult for private equity players with some of the other proposed funds on hold for the moment.