April 27, 2012 / 10:01 AM / in 5 years

India's IDFC to raise $1bln-$1.5bln for infra fund-sources

MUMBAI, April 27 (Reuters) - India’s Infrastructure Development and Finance Co is in the early stages of raising $1 billion-$1.5 billion for a new fund to invest in infrastructure in the country, two sources with direct knowledge of the matter told Reuters.

The funds will be raised for IDFC Project Equity, in which Citigroup and India Infrastructure Finance Co., a state-owned infrastructure finance firm, are key investors, the sources said.

The company already has a project equity fund, which manages about $930 million in roads, ports, airports and power projects.

The new fund, which is set to be launched in the second half of this year, will also invest in such projects, said the sources.

“We have invested nearly 80 percent of our first fund and exited a couple of investments. Now, we are looking to launch the second fund,” said one of the sources.

An IDFC spokeswoman declined to comment.

The previous fund drew investors from India, the United States, Canada, Europe, Japan and the Middle East, and the new fund will target investors in the same places, one of the sources said.

The existing IDFC Project Equity fund is part of the $5 billion India Infrastructure Financing Initiative announced in early 2007 by IDFC, Citigroup, Blackstone Group and India Infrastructure Finance Company (IIFCL). The initiative was to have a $2 billion equity component and $3 billion debt portion.

However, Blackstone later pulled out of the venture.

Several private equity groups, including the 3i Group PLC and a fund jointly managed by India’s State Bank of India and Australia’s Macquarie Group, are on the road to raise India infrastructure funds worth a combined $4.5 billion, sources have said.

Others raising India infrastructure funds include the private equity arms of no.2 Indian lender ICICI Bank and Kotak Mahindra Bank.

Private equity investments in Indian infrastructure fell 60 percent to $183 million in 10 transactions during January-March quarter compared with $459 million in 16 transactions a year ago, according to industry tracker VCCircle.com, as policy concerns and slowing growth dampened sentiment.

Poor infrastructure acts as a bottleneck to India’s economic growth, which slowed to 6.1 percent in the December last quarter, the weakest annual pace in almost three years.

India wants the private sector to invest hundreds of billions of dollars in infrastructure over the next five years.

But bureaucratic red tape, a lack of domestic long-term debt and battles between farmers and industry over land have hit construction and funding targets, hurting industrial growth. (Editing by Rajesh Pandathil)

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