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Business News/ Companies / News/  IDFC’s PE arm looks to raise fourth fund of up to $500 million
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IDFC’s PE arm looks to raise fourth fund of up to $500 million

The corpus will be raised from existing investors and limited partners in the US, Canada and other markets, says Girish Nadkarni of IDFC Alternatives

IDFC Alternatives has about $3.4 billion in assets under management across three PE funds, two infrastructure equity funds and one domestic real estate fund.Premium
IDFC Alternatives has about $3.4 billion in assets under management across three PE funds, two infrastructure equity funds and one domestic real estate fund.

Mumbai: IDFC Alternatives Ltd, the private equity (PE) arm of infrastructure financier IDFC Ltd, will launch its fourth PE fund in the next three months to raise around $400-500 million, said a senior executive. This is the first PE fund being raised by IDFC since 2008, when it raised $644 million.

The corpus will be raised from existing investors and limited partners (LPs) in the US, Canada and other markets, said Girish Nadkarni, partner at IDFC Alternatives. LPs are investors who provide capital to PE funds.

“The average investment size of the new fund would be $30-40 million and we are targeting an internal rate of return of 25%," said Nadkarni.

IDFC Alternatives has about $3.4 billion in assets under management across three PE funds, two infrastructure equity funds and one domestic real estate fund. Across its three PE funds, IDFC has invested $1.3 billion, according to its website.

The fourth fund is now being raised specifically with the objective of investing in sectors it has limited exposure to.

“We are focusing on newer sectors, mainly food and agriculture, consumer products and services, health and preventive care and media and telecom services," said Nadkarni.

Within the food and agriculture segments, the fund is focusing on identifying companies that manufacture seeds, cropcare products like biofertilizers and biopesticides and irrigation systems. In the consumer segment, IDFC will be looking at investing in shoes and apparel businesses and cafes and bistros.

The fund has already identified a few deals that will be showcased to LPs during roadshows, Nadkarni said.

“The key to raising capital will depend on past track record and LPs would like to learn from the not-so-good stories of the last investment cycle in terms of a more detailed review of deals and post-deal monitoring," said Vikram Hosangady, head of transactions and restructuring at KPMG India.

Nadkarni says that IDFC Alternatives has a strong track record of exits to show. The fund has exited 25 investments so far and is in the process of exiting a few more in the next four months, he said. It has made 41 investments in total.

“The first IDFC PE fund closed last year and has returned net (internal rate of return) of 32% to its investors," Nadkarni said.

Last week, IDFC Alternatives’ second fund exited its investment in renewable energy company Green Infra Ltd by selling its 60% stake for 1,060 crore to Singapore-based Sembcorp Industries Ltd.

“We are looking at five exits in the coming three to four months’ time which would include three strategic transactions and a couple through initial public offerings (IPOs)," Nadkarni added, declining to share details.

In December 2014, Mint reported that one of IDFC Alternatives’ portfolio companies—Parag Milk Foods Pvt. Ltd—was looking to raise around 600 crore through an IPO.

IDFC Alternatives is among a handful of homegrown private equity funds in the process of raising capital. Renuka Ramnath-led Multiples Alternate Asset Management Pvt. Ltd, Everstone Capital and Ajay Relan-led CX Partners are among them.

“The fund-raising environment for Indian general partners has relatively eased over the last few months. However, we expect LPs to be very discreet in making commitments, owing to their India experience thus far. This time around, the focus is on GPs’ track record, specifically exits and returns achieved," said Sanjeev Krishan, executive director and leader-private equity and transaction services, at PricewaterhouseCoopers India.

GPs are the general partners who manage a PE fund and make investment decisions.

Krishan added that the governance track record at investee companies and the manner in which GPs have dealt with their investments are also being scrutinized closely.

Apart from its PE funds, in October last year, IDFC Alternatives had closed its second infrastructure fund—India Infrastructure Fund II—by raising nearly $900 million. It was the largest fund raised last year.

In September, Mint reported that IDFC Alternatives was also planing to raise its second real estate fund of about $500 million to invest in affordable housing projects.

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Published: 18 Feb 2015, 11:44 PM IST
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