Indian infrastructure projects attracted a record US$25-billion investment from private players in the first three quarters of 2009  The Indian infrastructure sector seems to be the current buzz among investors, especially private equity (PE) players. This heightened interest among PE firms helped sealing around 19 deals till May 2010, as against 14 during the corresponding period in 2009. In an exclusive interview to Times Journal of Construction and Design (TJCD), Srividya CG, partner (Specialist Advisory Services) of Grant Thornton India, a leading advisory firm, says, “A combination of factors such as significant growth potential, huge domestic market, large demand-supply gap and increased impetus by the government, institutional funds and international development finance corporations on the PPP[i] model are attracting PE funds in the infrastructure sector.”
Miss Srividya further adds that the real estate sector was drawing maximum investment during the initial years (2007-08) due to shorter turnaround timeframe for revenue realisation. However at present, other segments such as road, ports, power are also witnessing increasing investment from PE players who are capitalising on the underdeveloped equity investment market of these long-term projects by creating a specific corpus or specific focus with longer fund life cycles.
Commenting on the areas that a PE investor will look for, Miss Srividya points out regulatory and other clearances, including land acquisitions, obtaining licences, environmental clearance etc; long-term contracts (comprising BOT[ii] contracts, power purchase agreements and other commercial arrangements); promoter credibility; availability of bank funding; location and financial feasibility as the key aspects.
Shift in investment approach
In recent times, PE players venturing into the infrastructure sector are keener to invest in specific projects rather than in companies, a common trend earlier. Consider the following instances:
Lower risks, coupled with lesser but assured returns are prompting PE firms to invest at the project level, as opposed to investing at the entity level, feel industry leaders and sectoral analysts. “Apart from this, it is easier to assess a specific project and such investments also give the opportunity to exit anytime by selling the equity stake to the promoter or any other strategic investor,” says R Vohra, director of Saffron Asset Advisors, a Mumbai-based PE player. Moreover, project level investments in the infrastructure sector offer better deals for PE players.
Some analysts further add that early-stage investments are considered to be smart as they command cheaper valuations, while PE funds that come at a later stage (after the financial closure) are required to pay a premium.
US$25-billion private investment
On the brighter side, Indian infrastructure projects attracted a record US$25-billion (bn) investment from private players in the first three quarters of 2009. Energy, road, power and shipping are the four sectors that attracted maximum private investments over the last few months.
This improved performance by the infrastructure sector has encouraged the PE arm of ICICI Bank, ICICI Venture, to launch a US$500-million infrastructure fund very soon.
In another attempt, the country’s Planning Commission intends to raise US$11-bn infrastructure funds over the coming 3 years by issuing bonds in both domestic and international market. The fund will be invested for the development of roads, power plants, ports, airports and also in the railway sector.
Jeeta Bandopadhyay
[i] PPP – Public private partnership
[ii] BOT – Build operate transfer
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