Global financial giants have joined hands with leading Indian counterparts to provide long-term finance for the infrastructure development in India. Leading private equity firm Blackstone, financial powerhouse Citigroup, India’s Infrastructure Development Finance Company (IDFC) and Indian Infrastructure Finance Company (IIFC) said on Thursday they had launched an initiative to set up a $5 billion fund in a combination of equity and debt, with maturities exceeding over 10 years.
The fund is being launched under a programme titled ‘The India Infrastructure Financing Initiative’.
Of the $5-billion fund, $2 billion will be in the form of an equity, which will take exposure as risk capital in the infrastructure companies across sectors including roads, ports, power and other related areas. The asset management company of IDFC will monitor the equity fund.
According to an agreement inked in the Finance Ministry on Thursday by the four entities, the equity financing programme will be managed by IDFC and the fund will be invested in greenfield, brownfield and operating projects. Speaking on the occasion, Finance Minister P Chidambaram said, “This initiative is an important milestone in our search for innovative solutions to meet the vast challenge of financing the development of India's burgeoning infrastructure sector."
Blackstone, Citigroup and IDFC have committed to invest $75 million each and IIFC will invest $25 million in the equity fund, resulting in a sponsor contribution of $250 million. The remaining $1.75 billion will be raised from overseas and domestic long-term investors.
In addition, these institutions will also set up a debt fund of $3 billion, which will be used to provide long-term debt financing to infrastructure projects. Debt financing will be channelled through IIFCL in several tranches over the next three years for projects appraised by IDFC, certain banks and financial intermediaries. These funds will be invested across sectors in public sector or private companies or a combination of both, said SS Kohli, chairman, IIFC. “India needs $320 billion in the next five years to fund infrastructure development,” he added. The debt fund will be raised at competitive rates. “We expect to raise equity over 18 months, mostly abroad,” said Rajiv Lall, managing director of IDFC.