Mumbai: Private equity (PE) firm Blackstone Group Lp. has disassociated itself from the multi-billion dollar India Infrastructure Fund Initiative (IIFI), because it was allocated a very small portion of the equity investment, a top official at the firm said.
“That’s no more (Blackstone’s participation in the venture),” said Akhil Gupta, senior managing director of Blackstone.
IIFI was a collaborative effort announced in February 2007 by Blackstone, Infrastructure Development Finance Co. Ltd (IDFC), Citigroup Inc. and India Infrastructure Finance Co. Ltd (IIFCL) to invest in infrastructure projects. Government estimates suggest India needs $500 billion (Rs25.25 trillion) of investments in the infrastructure sector through 2012.
As initially envisaged, IIFI was to raise up to $5 billion, of which $2 billion was to be equity and $3 billion long-term debt, which would come from IIFCL. However, Gupta said the equity component of the fund was last year reduced to less than $1 billion.
“That was the right size and that’s the bold thinking we should have had,” he said of the original size of the fund. “We could have added huge amount of value.”
“They reduced the size and they reduced the allocations we wanted out of that. It’s too small. They gave us $35 million. Each deal is much bigger than $35 million. So why would we invest $35 million and sit on the investment committee of every single project,” said Gupta, who is also the chairman and MD of Blackstone Advisors India Pvt. Ltd, the India arm of the US fund, and which has about $800 million in assets under management.
An allocation of $35 million would have been 0.03% of the global PE fund’s $116.3 billion in assets under management worldwide at the end of September.
A Citigroup spokesperson directed queries to IDFC, saying: “IDFC is the lead manager for the infrastructure fund. It is their fund and they are better placed?to?answer?your queries.”
“For the economics to be meaningful, there was space only for two sponsors. So Blackstone opted out,” said M.K. Sinha, president and chief executive of IDFC Project Equity, which manages the fund. IDFC Project Equity has put in $100 million in the equity component. Citigroup has invested another $100 million, while $680 million has been raised by the two entities from third-party investors. Sinha said the fund is open and has a ceiling of $1.25 billion on the equity side.