India's IDFC Private Equity, an arm of Infrastructure Development Finance Co Ltd, could raise its fourth fund for large infrastructure projects in late 2010, although rising valuations are a challenge for deals, a top executive said on Tuesday.

IDFC Private Equity, India's largest infrastructure-focused fund, has spent about 40 percent of IDFC Private Equity Fund III, which was closed in May 2008 after raising $700 million, chief executive Luis Miranda told Reuters in an interview.

However, it has not done any deals in a year as valuation expectations have shot up, he said.

"We could be back in the market 15 months later, by end 2010, for a new fund," said Miranda. "Today, if I were to raise a fund, it would be around $700 million."

"There are tremendous investment opportunities. The challenge is valuation," Miranda said.

India's benchmark stock index .BSESN has risen 75 percent so far this year, raising the valuation expectations of Indian entrepreneurs looking for partners and investors.

Many firms have raised funds via stake sales or initial public offerings as the market has surged. Share sales have raised more than $15 billion this year, most of it in recent months.

"One of the significant challenges is the stock market," said Miranda.

"Certainly, valuations are so high and investor appetite is so strong that people will say, 'I'd rather list my company rather than being stuck with a stupid private equity company on my board trying to tell me how to run the company'."


After being unable to exit investments last year as the stock market slumped by more than half, the firm was now working on about half a dozen "liquidations", either full exits via trade sales or initial public offerings of shares, he said.

Ashoka Buildcon, an IDFC-backed construction company, has filed an application for a stock market listing, he said.

"We are comfortable with the pace of the investment. We have done four deals, which has been slower than before but it has been larger sums of money," said Miranda.

"What have been not been comfortable is the work we have been spending on our portfolio companies. We thought we would have 8 liquidity events in 2008, but we ended up with zero," he said.

He said the firm was spending more time improving the operations of companies it had invested in, saying they had to learn to survive in the medium term to take advantage of the long-term potential of India economic growth.

IDFC Private Equity has investments in 26 Indian companies, its website showed. Miranda said those that were focused on exports or related services, such as port builders, had been hit hard by the global downturn and the fund would focus more on firms driven by domestic infrastructure needs.

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