Mumbai: After completing the acquisition of the infrastructure investment business of IDFC Alternatives Ltd, US-based investment firm Global Infrastructure Partners (GIP) will now explore opportunities to partner with foreign infrastructure developers and owners to help them enter India through equity partnerships, M.K. Sinha, managing partner and co-head, GIP India, said in an interview.
Speaking on the fund’s strategy in India for the first time since the completion of the acquisition in July, Sinha said GIP will be raising an India-focused fund early next year, besides investing in buyout opportunities. It will also assist global infrastructure developers and operators willing to set up shop in India to de-risk their equity exposure.
The two infrastructure-focused funds of IDFC Alternatives—India Infrastructure Fund and India Infrastructure Fund II—which have a total corpus of a little over $1.8 billion, have now transitioned to GIP. The new fund will be GIP’s third fund in India. Globally, GIP manages over $51 billion for its investors. Acquisition of the infrastructure business from IDFC Alternatives has allowed the firm to establish a foothold in India. It has also set up an office in India, its first in an emerging economy.
Speaking on the investment strategy, Sinha said the firm will continue to do control transactions domestically, but will be open to minority deals with financially strong global infrastructure developers.
“Incrementally, for fund III we could look at a build out strategy, as well as doing low-end construction. As GIP, we have global relationships. There are large financially sound infrastructure developers and owners keen on entering India. With an India fund, we will look at partnering with them, helping them de-risk entry strategy by investing alongside these firms, and giving them comfort of local presence with our feet on street," Sinha added.
IDFC Alternatives had initially started off with under-construction and minority deals in the infrastructure space by teaming up with engineering, construction and procurement (EPC) firms—a strategy it moved away from for its second fund owing to risks faced on account of being severely over-leveraged.
Additionally, risks associated with land acquisition, cancellation of allocations and environmental clearances posed challenges as well. For its second fund, the firm stuck to operating assets and control transactions, clubbing them with various platforms, and allowing better value creation and governance. The acquired assets have been aggregated under four platforms—roads, renewable energy, telecom towers and rail freight terminals.
“We have been doing control deals as we have had issues teaming up with weak strategic sponsors, which sought partnerships only to seek money. But we are happy to be in a minority position with financially strong global infrastructure developers, who have long-term hold perspective, operations and management DNA, but do not have an India presence," said Sinha, adding GIP will look to team up with those that are looking for money not because they need it and are seeking local knowledge and want partners to have some skin in the game.
“HC1 is the most mature of the four platforms and we want to monetize it before launching our new fund to prove the value we have created." GIP expects to make 1.5 times returns on its investment from the first fund and has so far returned 80% of the capital to its investors. Around $90 million of dry powder is left from the second fund, which Sinha said, will be deployed to either bulk up the telecom or renewable energy platforms.
On emerging investment opportunities, Sinha said GIP will explore deals in airports, given the talks around privatization, fibre backhaul and data centres led by the roll out of 5G services, and electricity transmission, among others. GIP will also be evaluating its investments in distressed coal-fired power plants.