3i sees lucrative Indian infrastructure returns

3i sees lucrative Indian infrastructure returns

Amsterdam: 3i Infrastructure, the listed infrastructure fund 33% owned by 3i Group, sees more deals for its $1.2 billion Indian infrastructure fund that will boost returns, its managing partner told Reuters.

3i Infrastructure, which together with 3i Group committed $500 million to an Indian infrastructure fund, expected Indian deals to deliver well above its overall 12% annual total return target, Cressida Hogg said.

“We see our investments in India as being so-called hybrid infrastructure, so this is infrastructure with operational and geo-political risk, and we are pricing our deals in India north of 20% (for return on equity)," Hogg said.

The 3i India Infrastructure Fund, which has attracted investments from European, North American and Asian investors, has invested some $688 million in the country, as a growing urbanized population drives demand for new infrastructure.

Its assets include Adani Power, an independent power producer which was listed in a $610 initial public offering in August 2009 and whose shares have risen more than 40% since then.

“The Congress party, in particular through the last government and this government, has been a big promoter of private capital in Indian infrastructure, we think that will continue," Hogg said.

“With the Indian fund we are bridging an early stage investment with equity, so we are looking to exit within a three to five year time horizon usually in our Indian deals."

3i Infrastructure is also targeting transport and utility assets in Europe following its £176 million equity participation in the £2.1 billion acquisition of train leasing business Eversholt from HSBC, Hogg said.

Not a quasi-bond

Hogg said 3i Infrastructure was different from the other British listed infrastructure funds -- HSBC Infrastructure (HICL), International Public Partnerships (INPP), GCP Infrastructure Investments and the soon to be listed John Laing Infrastructure Fund.

“All of those funds are focused very much on the social infrastructure space, this is a good yield area of the market but has limitations for capital growth. We target wider core infrastructure such as transport and utilities," Hogg said.

3i Infrastructure had a dividend yield of 5% in the last twelve months, in line with INPP and HICL, according to Thomson Reuters Starmine data.

On Tuesday 3i Infrastructure reported a six-month diluted net asset value per share of 116.8 pence, up 5.4% from a year ago, as its income generation more than doubled year-on-year to £30.5 million during the period.

“Our shareholders are not looking at us as a quasi-bond, I think they sometimes look at the other funds, particularly HICL, as such. Our shareholders are looking at us as a blend of yield and growth," Hogg said.

In October, 3i Infrastructure sold part of its junior debt portfolio and plans to release more details in January. After the sale the debt’s mark-to-market valuation was £84.2 million, compared to a pre-sale £123.1 million valuation.

“The issues in the junior debt market were around market volatility and imperfections rather than the underlying credit worthiness of the businesses. This kind of investment has been very profitable for us, it was a smart move," Hogg said.

Hogg would not comment on whether Viridian, an energy utility owned by Bahraini investment house Arcapita, which was included in its junior debt portfolio as of the end of September, was still part of its investments.

Junior lenders to debt-laden Viridian are hoping to be compensated after it agreed to sell its Northern Ireland Electricity networks business to Ireland’s Electricity Supply Board in a deal worth €1.25 billion.