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May 25, 2010

Private Equity in Infrastructure: What's Needed?

Sanjay Sethi, ED & Head of Infrastructure Group, Kotak Investment
Banking has an article in the Economic Times on the current challenges in raising PE funding for infrastructure projects and what's needed to boost such transactions.

What India needs:
India could well do with more pure-play specialist infrastructure funds with long-term investment horizon and reasonable return expectations (in the midto-late teens).This may attract infrastructure developers who would otherwise consider listing themselves,most of them somewhat prematurely,and raise capital even at the cost of higher dilution.

SPV-level investors in greenfield projects:
Most PE as well as infrastructure funds are currently focused on entity-level deals with a mix of operational,under implementation and under development projects with clear visibility of an IPO in the next 3-4 years which provides them an exit opportunity.While a couple of SPV-level investors are currently operating in the country,there is room for more such players.Internationally these funds list themselves to provide an exit opportunity to their investors without the fund having to exit the underlying investment through an IPO or otherwise.

Yield investors: These investors typically look to invest in operational projects with stable cash flows and expect yields in the midteens,enabling sponsors to take out capital from mature assets and use it as growth capital to develop more Greenfield projects and create value.Some offshore investors are already eyeing this segment in India and more investors will likely step in once the universe of commissioned projects reaches a critical mass over the next 2-3 years.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at