The Georgian Co-Investment Fund (GCF), a $6 billion private equity platform based in Georgia, is leading a $723 million investment in the Tskhenistskali hydro power plant project (Tskhenistskali).
The fund has for now taken on 100 percent of the project’s equity but it is currently negotiating a deal with two potential co-investors which would likely see them acquire a stake in Tskhenistskali once preliminary studies are complete, Irakli Menabde, managing director of GCF, told Infrastructure Investor.
Debt will also be raised in due course, with a target debt to equity ratio of about 60/40, while the equity could be further syndicated as the 347-megawatt (MW) project develops, Menabde said. “Our aim is to create an environment where international institutions, such as pension funds, are comfortable investing in Georgian projects. Our attractive fee structure is tailored for this.”
GCF was founded in September 2013 with a mission to foster economic growth in Georgia. It is described by Menabde as a “plain-vanilla private equity fund” but is perhaps best understood as a platform offering co-investment opportunities to its members, leaving them the choice to opt in or out on a deal-by-deal basis. The fund collects a management fee of 2 percent on invested capital, Menabde explained, and has a double-digit hurdle rate.
It has a duration of 10 years, with the $6 billion headline figure representing the overall equity it is expected to deploy on behalf of limited partners over its investment period. Known backers of the vehicle include Turkish conglomerate Çalik Holding, the State Oil Fund of the Republic of Azerbaijan and the UAE’s Ras Al Khaimah Investment Authority. Other limited partners comprise regional institutions and family offices.
GCF last week signed a Memorendum of Understanding with the Georgian government, which Menabde said is a binding document entrusting the fund with the responsibility to deliver Tskhenistskali. It also signed a feasibility study contract with Icelandic power companies Verkis and Landsvirkjun Power, effectively marking the “beginning of work on the investment programme”, he added.
Feasibility studies, expected to last eight months, will be followed by a basic design study which he reckons will take another two months. It is after these are complete that international co-investors will officially come into the fray, Menabde said. Suitable partners are likely to be “experienced developers” which are also capable of bringing “financial support”.
While Menabde did not provide a specific target return for GCF’s involvement in Tskhenistskali, he noted that the fund has a minimum IRR threshold for investment in projects of 17 percent.