IDFC exits India's Essar Power for $87.1m
IDFC Alternatives has fully exited its stake in Indian power plant operator Essar Power for INR5.8 billion ($87.1 million).
IDFC CEO and Managing Partner M.K. Sinha told AVCJ that the deal, which closed earlier this month, involved several private investors. IDFC paid INR3.5 billion for its 1.5% stake in 2009, so the sale price indicates a 1.7x return on its investment.
The period between 2008 and 2011 saw a wave of private equity commitments in Indian energy, with an average of 18 deals per year and $3.4 billion invested in all according to AVCJ Research. However, investments fell sharply the following year after revelations of mismanagement by the state-run coal supply organization saw planned allocations cancelled, leaving local energy suppliers starved for fuel.
“There were a multitude of issues, all beyond the control of investors, that impacted infrastructure investments of that vintage, and power was particularly badly impacted on account of the cancellation of coal blocks,” Sinha told AVCJ, attributing IDFC's relatively positive returns from Essar to the downside protections built into the original investment agreement.
Essar was the first investment from IDFC’s debut infrastructure fund, which launched in 2007 and closed two years later with total commitments of $927 million. IDFC is currently exiting the fund, with three full exits and three partial exits to date, and hopes to divest fully by 2019.
The firm’s successor infrastructure vehicle, India Infrastructure Fund II (IIF2), closed with $900 million in 2014. Like the previous fund, IIF2 targets core infrastructure assets, primarily roads, ports, airports and power, and including both greenfield and brownfield projects.
Recent investments include the purchase of a wind power business owned by Jindal Steel & Power for INR1.1 billion and the acquisition of a Bangalore toll road from NCC Infrastructure Holdings at an enterprise value of INR7.5 billion.
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