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Amid slump, SBI-Macquarie fund raises $1 bn

Financial Express
Tuesday, April 07, 2009

Even as global markets are reeling under a liquidity crunch, the State Bank of India (SBI) and Macquarie Group jointly tied up more than $1 billion to finance infrastructure projects.

The fund, which will give a fillip to the government's efforts to stimulate a sagging economy by spurring infrastructure spend, will invest in assets that will generate long-term cash flows.

International investors have committed $887 million to the Macquarie-SBI Infrastructure Fund (MSIF), which will invest across sectors such as road, ports, power and telecommunication.

SBI and Macquarie, the sponsors, and International Finance Corporation, a minority shareholder in MSIF, have committed $150 million each. The fund will invest in greenfield projects as well as established operating businesses.

MSIF, together with Indian domestic institutions, will continue to raise capital in 2009 in the range of $2-3 billion. Foreign institutions will invest through MSIF, while Indian domestic institutions will invest through a domestic entity called SBI-Macquarie Infrastructure Trust (SMIT). MSIF and SMIT will jointly invest in infrastructure projects in India.

The fund will invest in traditional infrastructure assets that generate long-term identifiable cash flows and exhibit essential service characteristics, said a press release. The fund has already identified a few investment pipelines which are under assessment and anticipates further investment opportunities in the next two to three years.

While announcing the launch of the fund, R Sridharan, managing director, SBI, said, The traditional method of debt financing must be supported with equity funding. As per the Planning Commission estimates, the country will require close to $500 billion in infrastructure investments in the next five years. Funding of this magnitude cannot be supported domestically alone and must be supplemented by other sources of capital. SBI aims to bridge this funding gap by establishing this fund and bringing in international expertise through our joint venture with

Macquarie.

Our ability to raise over $1 billion in exceptionally challenging markets is a testament to investors' confidence in India as an investment location and ultimately the compelling demographic story that is driving the Indian economy, said Nick van Gelder, head of Macquarie Capital Funds in Asia.

Of late, India's infrastructure sector has become a prime focus for the government to stimulate the economy. Owing to severe liquidity pressure in the financial system, private infrastructure developers undertaking projects through the government's ambitious public private partnership (PPP) mode in the port and road sectors were finding it difficult to achieve financial closure.

With the overseas funding route almost drying up and the domestic cost of financing rising steeply, private developers have kept themselves largely out of many infrastructure projects, for which the government has invited bids.

Sources :: State Bank of India