Infra will find its rightful place in the sun: Sanjay Sethi

Q&A with head of infrastructure advisory, Kotak Investment Bank

Infrastructure space has fallen out of favour for investors, both public and private. But the sector could bounce back in the next 2-3 years, believes Sanjay Sethi, head of infrastructure advisory, Kotak Investment Bank. The i-bank was the sole financial adviser to GMR and SBI Macquarie's deal where the latter bought 74% stake in a highway project. He speaks to Katya B Naidu, on the deal and the business environment. Edited Interview:

SBI Macquarie bought a majority stake in GMR Jadcherla Expressways Ltd (GJEL). What is the exit route for this kind of transaction?

This is not a regular private equity deal of stake purchase. SBI Macquarie will be the owner and will manage the asset. Internationally, Macquarie owns many infrastructure assets be it roads or airports.

Indian market has not seen many buyout deals?

In India, so far private equity (PE) has been a minority player. But buyout deals will happen as they are very popular in developed markets. I would say the era of buyouts will begin.

Will there be more buyout deals in the infrastructure space?

I am quite confident that the issues in the infrastructure sector will get resolved in the next 2-3 years. The sector will come back in a big way and will find its rightful place under the sun.

There are quite a few road projects which are up for sale. Do you see any more such deals closing this year?

There are above 50 road projects available for acquisitions, and many of these projects are in operational stage. Several projects are in negotiation stage, and some of these might close in the next 3-6 months.

What will be the strategy of funds which acquire majority stakes in the road projects? Are they looking only at returns from the projects?

Some funds might look accumulate road projects, club them and go for a public offer. But there are investors who are open to yields through the life of the project. There are many sellers and few buyers. As a result, valuations are under pressure and not many deals are taking place because of a mismatch between the bid and ask.
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Can the economic prospects of these projects improve?

Interest rates are very high now. Some private equity players might look at re-financing these projects at a later date at the right cost. This can increase the equity returns of a project.