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Babcock forms India team, eyes $2 b assets

Australia investment bank manager Babcock & Brown hopes to invest in $2 billion of Indian property and infrastructure assets within three years and has poached nine investment bankers from ABN AMRO for the task.

Jaginder Singh Pasricha, executive director for business development in India, told Reuters the infrastructure specialists he pinched from the Dutch bank had started their fund on Monday.

Pasricha has spent the last year formulating a strategy for spending up to 40 per cent of a $1 billion Asia infrastructure fund. This week he put together a new team in one fell swoop.

“We know we're the new boys on the block,” he said.

The new Babcock & Brown team will approach Indian companies building roads, ports, airports and power plants.

“We'd look to partner companies with some existing expertise with infrastructure,” he said in an interview with Reuters.

“It could be a contractor with a few projects who needs a bit of hand holding and, if possible, a bit of capital.”

Investors have been increasingly drawn to Indian infrastructure as the government estimates about $500 billion will be needed to build new roads, airports and power plants by 2012 to keep pace with a fast-growing economy.

After making some investments for the Asia-wide fund, Babcock & Brown would probably launch India-focused infrastructure and property funds.

“This is a personal view, but I'd like to see us have $2 billion in assets under management in the next three years,” said Pasricha, who used to run his own investment banking legal advisory firm in Melbourne.

Babcock & Brown will be competing against the likes of U.S. investment banks JPMorgan, Goldman Sachs and Australian rival Macquarie Bank to channel foreign investor money into Indian infrastructure.

Earlier in April, private equity firm 3i Group said it had raised $1.2 billion for Indian infrastructure and State Bank of India and Macquarie said they planned to raise a similar $2 billion fund.

Homegrown fund IDFC Private Equity also told Reuters last week it was raising a new $700 million infrastructure fund, mostly from foreign investors.

And a senior official with a unit of Deutsche Bank said on Monday it aims to invest more than $1 billion over three years in Indian construction and real estate projects.

Despite the toughening competition for deals, Pasricha believed that India had the greatest potential for infrastructure investment in Asia, partly because companies hankered for foreign expertise, especially in managing assets.

“If I stood up here and said 'here's a cheque', everyone would walk past me,” Pasricha said on the sidelines of a property conference in Mumbai.

“But local companies realise that global exposure brings skills and expertise. It's not about the money.”

Annual returns from building infrastructure from scratch would probably be in the high teens, Pasricha said, with finished assets giving per centages in the low- to mid-teens.

“In Australia, returns on infrastructure are 8 or 9 per cent, and they think they're brilliant,” he said.

In India, the risks include delays and rising costs, Pasricha said. Construction costs have jumped by about a quarter in the last year. Research was also often faulty.

“For toll roads, you'd expect traffic risk to be non-existent,” he said. “But not many toll roads are operating at or above traffic reports. There might be a resistance to paying tolls or maybe leakage in collection.”

Power generation was probably the most attractive area for investment, because of the huge demand, Pasricha said. India wants to increase installed power capacity by 50 per cent to about 200,000 megawatts.

“Power is a good sector to be in,” he said. “But there's a risk in fuel costs and a huge shortage of turbines. On the supply side, to build and operate, you've got constraints.”
Source: Sify

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