Deals in the infrastructure space are set to increase as companies put dozens of assets across roads and renewable energy sectors on sale, according to analysts and investment bankers. A number of such deals have either been announced or are in the due-diligence stage and will likely be completed in 2017.
A number of infrastructure-focused funds and overseas pension funds have announced plans to invest in India’s roads and renewable energy projects.
“Within infrastructure, roads is a sector where one will see deal activity improving, primarily because there are multiple operating assets available for a transaction that do not have construction risks involved and thus have better appeal to a financial investor. Also, there are multiple buying platforms emerging apart from the existing road platforms, as financial investors will also become acquirers of road assets via structures such as InvITs (infrastructure investment trusts). It is now a question of buyers’ and sellers’ expectations meeting at a certain valuation benchmark,” said Navneet Singh, executive director and head, infrastructure group, Avendus Capital.
Also, while deals in the thermal energy sector are expected to remain subdued due to the presence of only a handful of buyers, predominantly looking for operating assets, “the renewable sector, primarily solar, will see activity in fund-raising as companies will continue to need additional capital to build their projects,” Singh added.
Several Indian infrastructure developers, weighed down by debt, have announced exits from individual highway projects to monetize assets and repay creditors while renewable energy firms evaluate fund-raises and going public.
The infrastructure sector raised about $3.78 billion in 2016 across 36 transactions, including mergers and acquisitions (M&A), private equity (PE) investment and two initial public offerings (IPOs), analysis of monthly data from investment bank Equirus Capital Pvt. Ltd showed. This compares with $2.9 billion raised in 2014 and about $3.7 billion raised in 2015.
According to data from Grant Thornton India, about $2.91 billion was raised from 39 M&A and PE transactions in 2016 across engineering, infrastructure, and clean-tech sectors.
Funds such as US-based I Squared Capital, Indian asset manager IDFC Alternatives’ infrastructure fund, Canada’s Brookfield Asset Management, Australia’s Macquarie Group, and the Canadian pension funds Canada Pension Plan Investment Board (CPPIB) and Caisse de Depot et Placement du Quebec (CDPQ) have committed large investments in the sector and are looking to buy assets across roads, thermal power and renewable energy to build their own portfolio in India. CDPQ, for example, had last year committed investments of $150 million for renewable energy in India and also joined hands with Tata Power Co. Ltd and ICICI Venture to launch a platform to facilitate investments in power projects with an initial capital of up to $850 million.
Infrastructure Fund II of multi-asset manager IDFC Alternatives, for example, plans to buy certain operational road assets by March. “A number of deals in the sector have been signed or announced over the last 12 months but many are yet to close. One noticeable trend seen is that closing and funding control acquisitions require significantly higher involvement and patience than buying simple passive minority stakes,” said Aditya Aggarwal, partner (infrastructure) at IDFC Alternatives.
“Going forward, I would expect a lot more mid-sized M&A activity in renewables given that significant solar capacity would get commissioned from the equity lock-in restrictions in 2017. Likewise, I expect the TOT (toll-operate-transfer) model to be a game changer in road sector investments this year,” Aggarwal said.
The government is looking to monetize 75 national highways operated by the National Highways Authority of India (NHAI) through international competitive bidding under the so-called TOT model, where investors including foreign funds will participate.
Similarly, road developers including Sadbhav Infrastructure Projects Ltd and Gayatri Projects Ltd are looking for buyers for some of their operational assets.
Hyderabad-based Gayatri Projects is carrying out the process of demerging its roads assets into a separate entity to bring in a financial partner or look at selling the portfolio either entirely or as individual assets to foreign funds, managing director T.V. Sandeep Kumar Reddy said. He expects the demerger process to be over by end of March.
Among upcoming deals this year is Larsen and Toubro Ltd’s (L&T) plan to transfer its build, operate, transfer (BOT) assets to Canadian pension fund CPPIB by March. A number of companies including IRB Infrastructure Developers Ltd, Sterlite Power Grid Ventures Ltd, IL&FS Transportation Networks Ltd, GMR Infrastructure Ltd and MEP Infrastructure Developers Ltd are gearing up to raise money and cut debt via the InvIT route.
InvITs are trusts which manage income-generating infrastructure assets, typically offering investors regular yield and a liquid method of investing in infrastructure projects. Josh Rosen Authentic JerseyShare This