IDFC PE to raise $600 million in third fund by March 2008

IDFC PE to raise $600 million in third fund by March 2008

Mumbai: IDFC Private Equity, the private equity investment arm of infrastructure financing firm Infrastructure Development Finance Co. Ltd (IDFC), is raising a $600 million (Rs2,364 crore) fund, its third since it set up operations as the country’s first pure play infrastructure PE investor in 2002.

The proposed fund has an upper limit of $700 million on the final corpus and is expected to close fund-raising in March 2008, said a person familiar with the development who did not wish to be named. The firm’s president & CEO Luis Miranda declined to comment.

The third fund from IDFC PE comes at a time when pure play infrastructure funds (ones that do not invest in real estate), backed both by domestic and overseas investors, have become popular in the country. In October, UK’s 3i Group Plc. raised $500 million in the first close of its proposed $1 billion 3i India Infrastructure Fund. The fund has already invested $328 million across two deals—Soma Enterprise Ltd and Adani Power Pvt. Ltd.

Separately, IDFC PE’s parent, the state-owned IDFC is itself in the process of closing first-round commitments for a mega $5 billion mega infrastructure fund, which includes debt and equity.

Co-investors in this fund include Blackstone Group, Citigroup Inc. and the ministry of finance-backed India Infrastructure Finance Co. (IIFC).

With the proposed $600 million fund, total funds raised by IDFC PE till date stand at $1.2 billion. Its first fund, India Development Fund, had a corpus of $192 million and was the first to raise capital entirely from domestic institutional investors. The second fund, dubbed, IDFC Private Equity Fund II, raised $440 million of which over 70% came from overseas investors.

See: Key portfolio investments of IDFC Private Equity

The first fund has been fully invested and has exited four investments—two of these are partial exits.

“The fund has already returned the original corpus ($192 million) to its limited partners (institutions which invest in PE firms) through these four exits," said the source close to the firm.

The internal rate of return (IRR) earned on these exits was not available.

The second fund, which was raised in 2006, has invested 50% of its corpus and is expected to be fully invested by the time the third fund, likely to be dubbed IDFC Private Equity Fund III, completes fund-raising in March.

Deal sizes from the third fund will also increase proportionately. Compared with $15-30 million per deal from the first and second funds, Fund III will pursue deals in the $30-50 million band.

The firm has invested in 22 companies till date, which includes three airports and 31 roads and bridges. It typically picks up stakes between 10% and 50% in each of its portfolio companies and invests across the spectrum in power, oil and gas, transportation, telecom, urban and rural infrastructure and social infrastructure (see table for key investee companies).

The firm has a seven-member investment team which is lead by partners Prakash Karnik and Satish Mandhana, apart from CEO Miranda.