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Citi, Blackstone, IDFC to build $5 bn infrastructure fund

Global financial giants have joined hands with leading Indian counterparts to provide long-term finance for the infrastructure development in India, reports Arun Kumar.

india Updated: Feb 15, 2007 22:20 IST
Arun Kumar

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 Citigroupand India's Infrastructure Development Finance Company (IDFC) and the Indian Infrastructure Finance Company (IIFC) said on Thursday they have 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 fund, 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 S.S. Kohli, chairman, IIFC. "India needs a total of $320 billion in the next five years to fund infrastructure development in India," he added. The debt fund will be raised at competitive rates using the global liquidity and leveraging the strength of funding institutions.

"We expect to raise equity over 18 months, mostly abroad. The process will be launched in a couple of weeks. It will be deployed in core infrastructure including roads, airports, ports, transport and logistics, power and gas pipeline," said Rajiv Lall, managing director of IDFC.

In a statement, Charles Prince, chairman and CEO of Citi, said "Citi was excited about this opportunity to make an impact on the development of infrastructure projects, which are critical to the country's growth prospects, and to be a partner in this important initiative, which was born out of a request from the Government of India at the Indo-U.S CEO forum held in December 2006.

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First Published: Feb 15, 2007 22:20 IST