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India’s IDFC makes 1.7x exit from Essar Power

Having realised about 40% of its debut infrastructure vehicle, the alternatives investment manager is looking to sell all of the fund’s assets by 2019.

IDFC Alternatives has divested its stake in Essar Power for 5.81 billion rupees ($87.2 million; €82.3 million) in cash, representing a return multiple of 1.7x on money invested. 

In 2009, the fund manager injected 3.5 billion rupees into Essar Power, one of the country’s largest private power generation companies. The company currently has a total installed capacity of about 4.8GW, 3.24GW of which is coal-based and 1.6GW is gas-fired, according to Essar’s website. 

The transaction marks the eighth exit by IDFC’s $927 million India Infrastructure Fund, which the firm described as “a credible and relatively good outcome for the sector in general and IDFC in particular”, according to the fund manager. IDFC did not identify the buyers, though Infrastructure Investor understands it involved a group of Indian family offices. 

The transaction comes at a time when a number of challenges, including under-performance across the energy supply chain and environmental issues, are putting the Indian power sector under stress and impacting the value of private investments.

IDFC said that a number of domestic and global institutions who had invested in thermal generation have had to take significant write-downs. The sector accounts for a large part of non-performing loans impacting the bank sector, the firm added.

MK Sinha, IDFC’s managing partner and chief executive, told Infrastructure Investor that the firm aims to exit all of IIF investments by 2019. About 40 percent of the fund has now been realised, with proceeds returned to investors, Sinha added.

In addition to Essar, the vehicle has made two full exits from a gas distribution network and a road asset, as well as three partial divestments from a telecom tower business, a power vehicle and a port, he said. 

IDFC manages $1.8 billion in two funds dedicated to Indian infrastructure. The firm has made 22 investments so far across sectors including transport, energy, utilities and social infrastructure.