Blackstone has pulled out of the much touted India's first multi-billion dollar infrastructure fund. The private equity group which was a co-sponsor of the $5 billion India Infrastructure Fund Initiative (IIFI) along with IDFC and Citigroup was apparently allotted a very small part of the equity component of the fund which led to the decision to disassociate itself from the venture, reports Mint.
Blackstone India head Akhil Gupta, said that the equity portion of the $5 billion fund was halved from $2 billion as planned originally to less than $1 billion sometime back and Blackstone was allocated just $35 million or less than 5%.
He is quoted as saying, "Each deal is much bigger than $35 million. So why would we invest $35 million and sit on the investment committee of every single project."
Announced in February 2007, IIFI was initially supposed to have an equity component of $2 billion besides $3 billion long-term debt, which was to come from India Infrastructure Finance Co(IIFC).
Last week Akhil Gupta had hinted on such a development, deciding to raise a standalone infrastructure fund. However, he did not disclose the size of the fund but added that plans were at a preliminary stage and that it would take another 2-3 months to take a shape.
IDFC which is the lead manager of the fund has termed Blackstone's decision to pull out as a natural thing as: "For the economics to be meaningful, there was space only for two sponsors. So Blackstone opted out," said MK Sinha, president & CEO of IDFC Project Equity, which manages the fund.
IDFC Project Equity and Citigroup have already put in $100 million each as their contribution to the equity component. They have also raised $680 million from third-party investors. The fund size has a revised ceiling of $1.25 billion(as against the $2 billion originally) and is still open. It is not clear if the total corpus of the $5 billion fund has been reduced or just the equity-debt mix has been changed.
IDFC Project Equity Company Ltd has raised $900 million for project equity investments in the Indian infrastructure sector. MK Sinha, President and CEO of IDFC Project Equity, told VC Circle in an earlier interview that they are in talks with several investors and plan to close the fund soon. "We have a hard cap of $1.25 billion and we are engaging with a few investors right now. We will close at $1-1.25 billion," said Sinha. The fund has already invested $80 million in several undisclosed projects.
The sponsors of the fund are IDFC and Citigroup, which have an anchor investments of $100 million each. The $1.25 billion fund is a part of the $5 billion India Infrastructure Fund. The rest of the amount will be raised over the next 5-10 years. "The rest of the amount could be mezzanine, or could be trust or debt, or even equity," added Sinha, who worked with GE Commercial Finance for 10 years before joining IDFC Project Equity, in an earlier interview to VC Circle.
Overall, it could turnout to be a positive thing for the infrastructure sector if Blackstone goes on to raise another big sector fund. It would add to the number of billion dollar plus infrastructure funds that have been created recently for investments in India including the $1.2 billion fund raised by 3i.
The fund houses announced big plans after projections showed India requires infrastructure investments to the tune of $450-500 billion by 2012 given the level of economic activity in the country.
To read about IDFC Project Equity's fund size, expansion plans and strategy, read here.