IDFC inks rare mezzanine deal

Capitalising on a growing demand for alternative sources of funding, India's Infrastructure Development Finance Company has loaned $34m in mezzanine funding to Caparo Energy.

Mezzanine deals in India have been few and far between, but there are signs that this may change. There has been growing evidence that the slowdown of India's public markets, long considered the main source of growth capital for Indian businesses, is causing domestic companies to seek funding from other sources.

As if to underline the trend, India’s Infrastructure Development Finance Company (IDFC) has completed $33.5 million in mezzanine funding to AIM-listed wind energy provider Caparo Energy.

The deal represents the company’s second round of financing from IDFC. Hyderabad-headquartered Caparo had in June raised $78.5 million from IDFC Project Equity’s Indian Infrastructure Fund, it said in a statement.

The company said it expected to repurchase/buy-back both tranches of mezzanine from internal cash flows and the issue of senior debt instruments, bonds or other debt refinancing within three to five years. The statement also noted that the mezzanine financing will entail no equity dilution for Caparo Energy's existing shareholders. In total, the company secured commitments of $112 million from IDFC.

“The closing of the second tranche of mezzanine financing in a timely manner puts our company in a position to fund over 700-MW of wind projects without any dilution to existing shareholders,” said Ravi Kailas, chairman and chief executive of Caparo Energy in the statement.

IDFC is not the only firm with plans to make mezzanine loans. In April, Eight Capital announced plans to launch a mezzanine fund targeting $250 million. The hedge fund manager said that a combination of high interest rates and equity exposure in India's rapidly growing mid-cap companies made the sector an attractive area for global investors.

Mezzanine investing in Asia is still in its early stages, market participants have noted previously.

“Generally speaking, there has not been an Asian mezzanine standard yet, just because the buyout market is relatively young and mezzanine as we define it for buyouts consequently is also a very young market,” Partners Group vice president of private debt at Alexander Ott told PE Asia earlier this year.

However Ott said he had witnessed “a lot of interest from sophisticated investors” in Asian mezzanine opportunities. “I think they are catching up fast here, and that’s something we expect to continue.”