CDC Group, the UK government’s private sector development arm, has made its largest-ever commitment yet to an Indian investment fund.
The institution has pledged $200 million to India Infrastructure Fund II, a vehicle managed by Mumbai-based IDFC Alternatives Limited. The fund has now reached its first close on $644 million, remaining on track to reach its total target size of $1 billion. The vehicle will focus on equity investments for both construction and operating infrastructure assets across the country, in sectors spanning roads, ports, social infrastructure and power.
CDC hopes its endorsement of IDFC will help lure other private investors to India, a country limited in its economic potential by dire infrastructure shortages.
“Poor infrastructure is one of the biggest obstacles to development and economic growth in India,” said Hiti Singh, portfolio director for Asia funds at CDC, in a statement. “The level of historic infrastructure investment has failed to keep up with the pace of economic growth and industrial expansion.”
The Indian government’s latest five-year plan estimates that there is an investment shortfall of almost $1 trillion – half of which must be provided by the private sector – to bring the country’s infrastructure up to date.
CDC’s latest commitment adds to the already strong support it provides to India’s private equity industry, with a total of more than $1.1 billion committed to local funds. Around 28 percent of its investments in the country have targeted infrastructure.
The institution has a long-standing relationship with IDFC, having provided funding to the holding company upon its creation in 1998 and committed to its private equity funds II and III. In 2008, the institution backed the firm’s debut infrastructure fund by providing $100 million.
The news comes shortly after CDC injected $25 million in Green Infra, one of India’s largest independent renewables producers. The co-investment, made alongside IDFC, aims to expand the company’s wind and solar power capacity through organic growth and acquisitions.
Founded in 2008, Green Infra now has a generating capacity of 387 megawatts (MW) across 18 assets in six Indian states, with more than 90 percent of its generation capacity from wind. CDC’s investment, which is part of a $125 million overall financing round, will allow Green Infra to reach its targeted capacity of 1,000 MW by 2016 – roughly equal to 5 percent of India’s current wind capacity, according to official figures.