3i to target social infra from second India fund

The second Indian infrastructure fund being raised by the London-listed firm will expand its investment remit to include areas such as education and healthcare, where the involvement of private capital has to date been limited.

A source at 3i, the London-listed fund manager, has confirmed a report in India’s Economic Times that the firm’s second Indian infrastructure fund will expand beyond its current remit to include social infrastructure such as education and healthcare.

The firm’s first Indian infrastructure fund, which closed on $1.2 billion in 2008 and was 70 percent committed by May this year, focused on investments of between $50 million and $200 million in power, ports, roads and airports, according to 3i’s website. It has invested in the likes of listed power firm Adani Power and roads business KMC Roads.

3i is currently in the market for a second fund, which has a target of $1.5 billion. A source at the firm said that, in line with what had been suggested in the Economic Times report, it will look at areas including railroads, water supplies, water treatment plants and infrastructure for the education and healthcare sectors.

There is concern that India’s most popular infrastructure sectors, such as roads, have proved problematic to investors. At the recent Infrastructure Investor India Forum in Mumbai, attendees referenced the unpredictability of the regulatory environment and issues relating to land acquisition as being among the factors that were stalling hundreds of projects within the government’s approval process.

However, social infrastructure is a relatively untested area for private capital providers in India, and there is some scepticism regarding prospects at this stage. Some attendees at a roundtable hosted by Infrastructure Investor in New Delhi earlier this year spoke of the need for better regulatory frameworks in the social infrastructure arena.

Gautam Bhandari, managing director at Morgan Stanley Infrastructure Partners, said that social infrastructure is both “very interesting” and also “very difficult and complex” for private investors, even in those areas where a regulatory framework exists. However, he noted: “You may find that the delivery of education is cheaper and better within the private sector.”

*For a full report on our Mumbai Forum, check out the November 2011 issue of Infrastructure Investor magazine.