At the VCCircle Fireside Chat, under the recently concluded VCCircle Infrastructure Investment Summit 2010, three seasoned private equity professionals—Stanchart PE managing director Nainesh Jaisingh, 3i Partner Deepak Bagla and IDFC Project Equity senior MD Vikram Pant—touched on the role of private capital in fuelling the India infrastructure story. Here goes the gist of the engaging chat:-
How are global investors viewing infrastructure as an asset class?
Nainesh Jainsingh (NJS): Infrastructure is becoming a new alternative asset class as demand is likely to run in the trillions of US dollars over the next 10 to 20 years. India as an asset class is well–established. You don’t need to sell the India story now.
Vikram Pant (VP): Infrastructure projects have two distinctive features: They are capital intensive and very long term. Some institutional investors, like pension funds, perfectly match these two criteria, and consequently invest in infrastructure assets. Pension plans can bring very long-term capital which does not require liquidity. We are seeing that after the downturn, LPs have become more realistic in their expectation of returns. Our (IDFC Project Equity) investment horizon is typically much longer (7-8 years). If we get our fund listed, we don’t need to exit investments as long as we get annuity income out of it. We could also bundle up some assets in our portfolio and list them for investors who want a specific kind of exposure to the infrastructure piece.
Deepak Bagla (DP): Private sector involvement, notably through specialized infrastructure investment funds, will soar.
What is the kind of exposure that a PE investor should take in infra assets? What value does he bring to the table?
DP: Investors should expose themselves to the infrastructure companies depending upon the amount of risk that they are taking in the company – at an enterprise or project level. As a PE investor, we have to clearly bring value to the table. We don’t have to be looked at as an alternative source of financing but as guiding the projects. You need more specialists to be a part of the project. Issuing a cheque is just incidental.
VP: Increasingly even LPs or the investors into the PE funds are pressing for more specialist operating partners into the funds.
What is the role that the private investment industry can play in building India’s infrastructure?
NJS: Debt will play a critical role in financing the infrastructure needs of the country. How many banks in India can write a cheque of Rs 5,000 crore for seven years? Very few.
DP: The real change can happen if we are able to mobilise the huge savings/deposits present in the Tier II and Tier III cities.
What are investors looking for from the government?
NJS: The government doesn’t need to set up funds. They just need to work on policy and regulatory framework. There is a need for cross–fertilization between private investors and banks to arrive at the right framework. If the regulatory and execution aspects are in place, risk premium will go down.
VP: Funding in infrastructure will get more mezzanine as we go forward. As debt is more driven by the regulatory framework, we need to get the right model to attract that kind of capital as in other countries.