The government plans to set up India-specific Infrastructure Equity Funds for each major investing country. These funds will floated by financial institutions like IDFC, Infrastructure Leasing & Financial Services Ltd (IL&FS), UTI AMC and India Infrastructure Finance Company Ltd (IIFCL) under an overarching government-to-government agreement.
The idea seems to have been taken from a unique infrastructure funding model launched in February this year. Blackstone Group, one of the largest private equity funds in the world, and Citigroup Inc had teamed up with IDFC and IIFCL to launch a $5-billion equity-cum-debt fund for investment in sectors like road and power.
The proposal has been submitted by a sub-group headed by KP Krishnan, joint secretary, capital market division, finance ministry. Since India has not been able to attract any major foreign investment from the West Asian countries, the plan is to first tap the cash-rich GCC (Gulf Cooperation Council). According to government estimates, there is a possibility of raising up to $5 billion from investors in the West Asian countries over the next two years.
The funds can offer equity or debt investment opportunities or a combination of two. The sub-group noted that one-to-one tie-ups with investment agencies on the lines of what was done by IL&FS with TAQA, the Abu Dhabi national energy company (under which the latter will invest $1 billion in the energy sector infrastructure projects of IL&FS over the next three-five years), could be considered.
To lure the GCC countries, the government proposes to throw open sectors like hotels and real estate, which offer high returns, for investment. The finance ministry plans to pursue the proposal to set up the funds at bilateral and multilateral fora. The expertise of other ministries and departments like power and fertilisers will also be drawn in pursuing investments.
The small, country-specific dedicated funds are primarily to ensure exclusivity to the countries being tapped and also permit customised product offerings to maximise the flow of funds.
The funds, to start with, would have a corpus of about $2 billion each and would be set up in concurrence with leading international banks and domestic institutions like IDFC and IIFCL. The Indian entities can contribute about $50-75 million and the balance will come from foreign investors.