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US credit crisis hits Indian core sector

The much-hyped India Infrastructure Initiative, which was announced by the Govt, has hit a roadblock with US-based private equity company Blackstone backing out.
Hindustan Times | By Arun Kumar, New Delhi
UPDATED ON MAY 05, 2008 09:22 PM IST

The financial crisis in the US is taking a toll on India’s infrastructure funding. The much-hyped India Infrastructure Initiative, which was announced by the government in February last year, has hit a roadblock with US-based private equity company Blackstone, a key sponsor of the programme, backing out.

The Central government’s plan involved creating a $5-billion corpus for infrastructure funding through a collaboration between Citigroup and Blackstone from the US and Infrastructure Development Finance Company Ltd (IDFC) and India Infrastructure Finance Company Ltd (IIFCL) from New Delhi.

About $3 billion of this was to be channelled as debt assistance to infrastructure projects, while rest would take the equity route.

The debt funds have, however, been a non-starter as the two American partners have not been coming forward because of the credit crunch back home. Blackstone has even backed out of equity funding, said a source familiar with the programme.

The US economy has been facing a credit crunch as banks and financial institutions have had to write off hundreds of billions of dollars in bad debt because of the so-called sub-prime loan crisis.

An official at IDFC, which is to manage the equity-funded schemes, said these were largely on course. These schemes include equity investment in roads, power, airports, ports, and industrial and commercial infrastructure. IDFC is planning to raise $700 million for first tranche of such projects, said the official, who spoke on condition of anonymity.

For this $100 million each will come from Citigroup and IDFC, while IIFCL will pitch in with $25 million. Blackstone, which is was originally scheduled to invest $75 million, is unlikely to make any contribution, he said.

The balance amount of $475 million would be raised from overseas institutional investors, he said.

The schemes would be close-ended private equity funds with a maturity of 10 years. The institutional investors are giving the commitments and the fund manager will draw down as and when investments opportunities come up, the IDFC official said.

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