Boosts ongoing trend, as scale of proposed need and financing draw global investors.
The government’s recent initiatives, those in the Budget proposals being the latest, on the infrastructure industry are expected to help attract good investment into the sector, especially from private equity (PE) companies.
In the Budget presented yesterday, an allocation of Rs 2.14 lakh crore was proposed for infrastructure in 2011-12, which is 23 per cent higher than the current year. To give a boost to project development in railways, ports, housing and highways, tax-free bonds of Rs 30,000 crore would be issued by various government undertakings in 2011-12.
Brijesh Koshal, managing director-investment banking, Daiwa Capital Markets India, said: “For the last three-four years, the industry has been talking on the Indian infrastructure growth story. It will get boosted with the proposed debt funding. There will be quick financial closure of current projects, causing more interest from PE investors.”
The limit for foreign institutional investors (FIIs) to invest in corporate bonds with residual maturity of over five years issued by companies in this sector is being raised from $20 billion to $25 bn. This will raise the total limit available for foreign investors in corporate bonds to $40 billion.
FIIs have also been allowed to invest in unlisted bonds with a minimum lock-in period of three years in infrastructure companies that are organised in the form of special purpose vehicles (SPVs). New infrastructure debt funds are also supposed to be launched in 2011-12.
Also Read
According to research platform VCCedge, 2010 witnessed 48 deals worth $2.8 billion (Rs 12,650 crore) in infra space against 44 deals worth $1.2 billion in 2009. Year 2007 witnessed 57 venture capital or PE deals in infrastructure space worth $5.5 billion (Rs 25,000 crore), the largest since 2005.
India’s projected investment in infrastructure for the five-year period starting 2012 is $1 trillion, half of which is expected from the private sector.
Expected
Vikram Uttamsingh, KPMG’s head of private equity, said, “With the date for implementation of the direct taxes code (DTC) charted out, some PE players might have to re-look at their investment structures. DTC will give income tax authorities more power to challenge these structures. PE will also have to relook at the structures created overseas to invest in India and look at alternative routes.”
| TOP INFRASTRUCTURE DEALS IN 2010 | ||
| Target | Buyer | Deal ($ mn) |
| Quality Engineering & Software Technologies Pvt. Ltd. | Warburg Pincus India Pvt. Ltd. | 75 |
| Sadbhav Infrastructure Project Ltd. | Norwest Venture Partners, Xander Advisors India | 85.89 |
| TRIL Roads Pvt. Ltd. | Actis LLP | 77.5 |
| GVK Energy Ltd. | 3i India Infrastructure Fund, Actis LLP, GIC Special Investments Pte Ltd. | 326.54 |
| GMR Energy Ltd. | Temasek Holdings Advisors India Pvt. Ltd. | 200 |
| Source: VCCedge | ||
The advantage with the infra bonds the government announced is that debt will be easy to raise and, in turn, many will look at equity, he added. Ajay Garg, MD, Equirus Capital, feels the availability of foreign debt, which is cheaper, will brighten the infrastructure space in India.
“Though the order books of the firms are full for the next three-four years, the current lower valuations are appetising for the PE investor, not the promoters. About 50-60 per cent value of the projects were eroded in the last one year,” said Koshal of Daiwa.
The major PE funds dominating infrastructure investments are Macquarie-SBI Infrastructure Fund (MSIF), run by Macquarie SBI Infrastructure Management Pvt Ltd, UK-based 3i Group, Infrastructure Leasing & Financial Services Ltd (IL&FS) Investment Managers Ltd and ICICI Venture. Expecting huge growth in infrastructure, all these majors are raising funds.
MSIF is likely to close a $1.2-bn fund this month. ICICI Venture is looking to achieve the first closure of its infrastructure fund by raising around Rs 1,500 crore by April. It targets a corpus of $750 million. 3i Group Plc had announced plans to launch a $1.5-billion infrastructure fund for India by 2011. IL&FS Investment Managers, along with Standard Chartered Bank, launched IL&FS Asia Infrastructure Growth Fund and achieved the final closure at $800 million.
Last week, Aegis Logistics sold out a six per cent stake to a Mauritius-based PE fund, Infrastructure India Holdings Fund LLC, on a preferential basis. NCC Ltd, formerly Nagarjuna Construction Company Ltd, announced plans to dilute stake in NCC Infrastructure Holdings Ltd, a subsidiary, to a PE player to meet the equity requirement for some projects.