$5 bn fund for infrastructure set up

NEW DELHI: US-based Citi Group and Blackstone have joined hands with infrastructure finance companies IDFC and IIFCL to set up a 5 billion-dollar corpus to fund infrastructure development in India, which requires a whopping 320 billion dollars in the next five years.

The India Infrastructure Financing Initiative will have equity and quasi-equity of one billion dollars each and three billion dollars long-term debt.

As per an agreement, that was inked today by the four entities in the Finance Ministry, the equity financing programme will be managed by IDFC and the fund will be invested in greenfield, brownfield and operating projects.

Debt financing will be channelled through IIFCL, in several tranches over the next three years for projects appraised by IDFC, certain banks and financial intermediaries.

Finance Minister P Chidambaram said: "This initiative is an important milestone in our search for innovative solutions to meet the vast challenge of financing the development of India's burgeoning infrastructure sector."

IDFC, Citi and Blackstone will together invest 250 million dollars and the balance is expected to come from reputable international investors as well as select domestic institutional investors, including IIFCL.

IDFC MD Rajiv Lall said: "We expect to raise equity over 18 months, mostly abroad. The process will be launched in a couple of weeks. It will be deployed in core infrastructure including roads, airports, ports, transport and logistic supply, power and gas pipeline."

IDFC Chairman Deepak Parekh said infrastructure for the country requires large sum of money. "This money is not available in the domestic market. So we need to raise money abroad so that big power projects, which require up to Rs 20,000 crore each, can be financed," he said.

The idea is to act as a catalyst for infrastructure financing although there are limits to which a particular project can be financed, Lall said.

Parekh said the fund is the outcome of India-US CEO Forum's initiatives and other funds to develop infrastructure in India can be worked out in Japan and the Middle East as well.

Infrastructure needs a huge sum of 320 billion dollars in the next five years, 20 per cent of which is expected to come from the private sector. The Finance Ministry is busy exploring various innovative ways to fund the burgeoning needs for infrastructure.

This fund is first such corpus after the Finance Ministry kicked off discussions with industry representatives in this regard.