Indian PE unit to launch $500m infrastructure fund

The private equity arm of Indian infrastructure leasing and financial services group IL&FS has begun soft-marketing for a new fund with a $500 million target in what would be its first launch for six years.

Archana Hingorani, chief executive of IL&FS Investment Managers, said the opportunity to raise money in India’s infrastructure market had arrived after a testing period post the global financial crisis. The previous peak period for fundraising in India was 2005-09.

“India has not been a stabilised asset market for infrastructure, it has been a growth market,” she told AsianInvestor during a recent trip to Mumbai.

“It’s only in the last two years that you have seen some of the assets that got built out being sold by entrepreneurs to recycle capital. That kind of stabilised asset structure, which is what most long-term funds think about, was not available until recently.”

In terms of stabilised structure, Hingorani – whom AsianInvestor selected as one of the 25 most influential women in Asian asset management last year – was referring to commissioned projects with at least a two-to-three-year track record. “Today there are plenty of such road and energy assets,” she noted.

“We think the time is right for a strategy that looks at both stabilised assets, which creates comfort for most Western limited partners, and new developments.”

She said IL&FS hoped to raise upwards of $500 million for the new fund combining stabilised and growth assets, which she noted typically yielded 13-15% and upwards of 20%, respectively, in rupee terms.

The firm is reaching out to existing global investors and to the US, where institutions have typically skirted international infrastructure investment.

“Previously we did not have the capacity to show stabilised assets, which US, European and Australian investors are used to,” Hingorani stated.

Since its inauguration, IL&FS’ private equity unit – which has $3.2 billion in assets under management – has launched a total of 13 dollar-denominated funds, of which six are still live. Some 90% of its investors are international.

All of its funds are India-focused except for the last one it launched in 2009, which targeted infrastructure across Asia. That raised $658 million and is due for completion in 2019.

Asked why it had taken six years to look to launch another fund, Hingorani explained the past five years had witnessed the global financial crisis, a domestic economic downturn and tardiness in government decision-making.

“The sectors most impacted were those dependent on the government for approval, so infrastructure and real estate were top of the pile,” she said.

“Now there are a clutch of projects available with a stabilised nature. Plus today we have a stable government, so there is a [prime minister Narendra] Modi effect. Improvements are being made in all aspects of infrastructure, combined with economic changes.”

IL&FS Investment Managers’ largest fund to date remains a $900 million real estate fund launched in 2007. But Hingorani said the firm had no plans to try to match it in size with the new fund, since size can create complications.

“At that point everything was moving at a faster pace, because of which we ended up doing more transactions,” she noted. “Normally you would want 12-15 assets in a portfolio. We ended up having more because we did not want to deploy a huge amount in every asset.”

As a group, IL&FS has $15 billion worth of projects under management.