3i Group has held a final close on its India-focused infrastructure fund at $1.2 billion (€753 million), 20 percent above its initial target.
The 3i India Infrastructure Fund was launched in August 2007 targeting $1 billion, aiming to build a balanced portfolio of infrastructure investments in India investing primarily in power, ports, airports and road projects in early-stage and mature infrastructure operations. The firm estimates that with leverage the fund will be able to complete projects with a capital value of up to $5 billion.
The fund has obtained commitments from 16 limited partners from ten countries across Europe, North America, Asia and the Middle East. As the fund had planned, 3i and its subsidiary, 3i Infrastructure, have each committed $250 million to the fund.
The vehicle is targeting around ten investments over its lifetime, and its portfolio already includes a $227 million investment in Adani Power, which is developing a portfolio of power plants across India, as well as a US$101 million investment in Soma Enterprise, an infrastructure developer focusing on build-operate-transfer (BOT) projects.
In 2007, 3i formed a strategic partnership with the Indian Government-owned India Infrastructure Finance Corporation Limited (IIFCL) to cooperate on financing infrastructure projects in India. This was one of the first such agreements between the Indian Government and a third-party investor.
Deepak Bagla, a manager with the fund in Mumbai, told PERE the fund is a natural outgrowth of 3i's early activities in the country, having first become involved in India in 2005 with a Growth Capital business. That business eventually acquired a Mundra Port in Gujarat, and this acquisition gave the firm the impetus to launch a whole fund around infrastructure assets.
The basic fact is that India now has come to a point where infrastructure is creating a frustrating bottleneck for future growth.
Bagla said that the fund plans to target much of the opportunity that is coming about as a result of changes in regulation and bidding systems. “A very significant development is the move to a public bidding system [for infrastructure projects] from the earlier negotiated system. This has made the entire concession awarding system very transparent. The government has also set out a model concession agreement for roads. This agreement clearly establishes the terms of the concession and has been a major step toward attracting private investment. What is now expected is similar agreements for water, ports and other sectors,” he said.
The Government of India estimates that investment in infrastructure will need to increase from 3.5 percent of GDP at present to eight percent of GDP by 2012, and anticipates that around $450 billion of infrastructure investment will be required in India by 2012. Ernst & Young estimates that more than $100 billion of this will need to come from private investors. The government is in a concerted push to increase private infrastructure investment in the country.
“The basic fact is that India now has come to a point where infrastructure is creating a frustrating bottleneck for future growth,” Bagla said.
3i's vehicle is one among many infrastructure funds that have been launched in India over the past two years. Several funds have already been set up to exclusively target the sector in India. In March, Mumbai-based investment firm Quantum Equity Advisors launched a $500 million infrastructure fund. In February, Kotak Investment Advisors launched a $1 billion fund for Indian infrastructure. And in February last year, The Blackstone Group teamed up with Citigroup and India's Infrastructure Development Finance Company to form a $5 billion Indian infrastructure fund.