IDFC raising $700 million India fund

Mumbai: IDFC Private Equity, a fund floated by Infrastructure Development Finance Corporation (IDFC),  is raising a new $700 million fund to buy stakes in firms expected to hold stakes in the country's power and transport networks.

IDFC expects to close the fund in the next two to three weeks, with around 85 per cent of the money coming from abroad.

The fund - IDFC's third -  aims for internal rates of return of about 20 per cent, against the existing yields of 12-13 per cent.

IDFC's first, $190 million fund, made 11 investments and has divested four, and has invested all of $440 million in the second fund.

IDFC had invested previous funds in a photovoltaic cell manufacturer and Quipo Telecom, which rents communications towers to telecoms operators.

IDFC is competing with overseas funds like JPMorgan, Goldman Sachs to channel foreign investor money into Indian infrastructure.

Last week, private equity firm 3i Group said it had raised $1.2 billion for Indian infrastructure and State Bank of India and Australia's Macquarie Bank also said they planned to raise a similar $2 billion fund.

Real estate and infrastructure companies and projects in India received the most capital, with $1.1 billion overseas investment, while the power sector garnered $520 million and telecommunications and finance received $340 million.

Infrastructure Development Finance Company Limited, Citigroup Inc, India Infrastructure Finance Company Limited and Blackstone Group Holdings L.P. Had in February announced the launch of ''The India Infrastructure Financing Initiative'', a collaborative effort to deploy approximately  $5 billion in capital for infrastructure projects in India.

The plan is to deploy about $2 billion in equity capital and $3 billion in long term debt financing with maturities exceeding ten years.

The equity financing programme will be managed by IDFC and will invest in greenfield, brownfield and operating projects primarily in roads, power, airports, ports, and industrial and commercial infrastructure. IDFC, Citi and Blackstone will together invest $250 million. The balance is expected to come from international investors as well as selected domestic institutional investors, including IIFCL.

The debt financing will be channeled through IIFCL in several tranches over the next three years for projects appraised by IDFC and also certain banks/financial intermediaries.