Investors are eying to pick up stake in completed highway projects worth Rs 245 billion, rating agency Ind-Ra today said.
“Investors are keenly looking to pick up stake in projects worth Rs 245 billion of completed highways with an average of six years of operational history,” India Ratings and Research (Ind-Ra) today said.
The agency noted that there has been a paradigm shift in the acquisitions – from developers to financial investors.
“Ind-Ra believes that this is a positive shift and it will give impetus and provide opportunities for the opening up of businesses in the operation and maintenance vertical,” the rating agency said.
“Ind-Ra estimates that deals which are yet to be sealed have a debt size of over Rs 164 billion. The activity pipeline has been abuzz in the last three years and Ind-Ra estimates that the highway sector has witnessed transactions of around Rs 111 billion in debt, during February 2013-June 2016,” the statement said.
The statement said, Ind-Ra, based on publicly available information as well as further limited information received from issuers, notes that the list of sellers or potential sellers include companies, namely, HCC Concessions Ltd, NCC Infrastructure Ltd, Soma Enterprises Ltd, Reliance Infrastructure Ltd and GMR Infrastructure Ltd.
It said the Indian highway sector is witnessing an enhanced level of activity in the acquisition space, largely led by global marque funds and investors namely, I Squared Capital, Brookfield Asset Management, PSP Investments and Macquarie’s India Infrastructure Fund among others.
These international funds have picked up stake or are in advanced stages of acquisition of around 2,900 km length of national and state highway projects, the statement said.
Similarly, domestic financial investors namely, IDFC India Infrastructure Fund and other infrastructure companies such as, Tata Realty and Infrastructure Ltd have made a mark by showing interest in deals of around 780 km length of highways.
With Infrastructure Investment Trusts gaining traction, Ind-Ra believes, highways as an asset class will further evolve and will set benchmarks.
“Road projects worth over Rs 400 billion, spanning around 3,600 km, have either been sold off in the last three years or are currently in the process of being divested. This recent increase in investor appetite could well be sustained, with reports doing the rounds that the government is working towards clearing the roads to provide access for global sovereign wealth funds to invest into private highway projects,” Ind-Ra said.
The agency added National Highway Authority of India’s 100 per cent exit policy, which was cleared in mid-2015 and road developers bid to deleverage their balance sheet have both aided the momentum in the last year.
A study of the deals shows that out of a total of 40 deals, including the ones in the pipeline, only five projects have been or are likely to be acquired by another corporate house, while institutional investors mostly account for the balance, India Ratings said.
Barring one project, all the projects have operational history of over six years, which could well be one of the reasons for investors evincing interest, since such projects reveal actual traffic potential, it said.
National highways and toll road projects are the most in-demand projects, around 94 per cent of highway projects in the fray are national highway projects and around 87 per cent of the projects are toll-based projects, which normally have a higher potential of giving returns to the acquirer, it said.