Sale of BOT roads, cement and Mumbai electricity businesses are expected to give Reliance Infrastructure, the infrastructure arm of the Reliance Group, good amount of liquidity, as the company aims to become debt free by March 2017, and enter the defence sector in a big way. While company officials are tight-lipped about the amount to be raised by way of these sales, sources have told FF that it could be as high as Rs 30,000 crore.
The company has already signed a non-binding term sheet with PSP Investment of Canada for sale of 49% stake in Mumbai electricity business, while talks for sale of roads and cement business are on with different players.
MS Mehta, CEO, Reliance Infra, tells Shubhra Tandon in an e-mail interaction that while the company will focus on defence, it sees growth opportunities for its EPC business in smart cities, power, road and metro projects. Excerpts:
What is the update on the cement and roads businesses sale?
We have portfolio of 11 revenue generating road projects of 4,600 lane kms with total investments of over Rs 9,000 crore. These projects are connecting high growth urban corridors of Delhi, Bangalore, Pune, Jaipur, etc, with significant traffic growth potential. We have already shortlisted five international bidders and expect the transaction to complete by the end of the financial year.
Also, we are planning to monetise 5.6 mtpa of operational capacity cement business along with related assets of the company. The due diligence process is at an advanced stage and seven potential buyers have been shortlisted from a total of 15 bidders and we expect to complete the transaction by the end of this calendar year.
How much does the company plan to raise by way of these sales?
We have decided to monetise road, cement and 49% stake sale in Mumbai power business at attractive valuations for creating long-term value for its shareholders which will be EPS accretive.
There are not many portfolio-level sales in the road sector so far, because the sellers have not been comfortable with valuations. What has R-Infra’s experience been with its discussions with prospective buyers?
There is a humongous difference in the quality of assets that are available and you will appreciate that buyers understand quality and are willing to pay for quality assets. We have road projects which are urban centric roads connecting high traffic growth corridors along with sensible bidding for these projects. Potential buyers have appreciated this fact and we have received very good response from them at an attractive valuation.
Have you signed any term sheets already and who all have evinced interest so far?
Owing to confidentiality, we are unable to share names of the prospective buyers at this stage.
What will be the funds so raised be utilised for?
The funds so raised will be utilised for reduction in debt and we aspire to be a debt-free company on a standalone basis by FY17.
By selling these two businesses, can we infer that R-Infra will not look at any more bids in these segments? Also, what happens to the EPC business of the company?
We will continue our strong interest in EPC and are actively pursuing opportunities with external customers in the entire power chain, smart cities, roads and metro rail. EPC continues to be our mainstay and all employees will remain with the company.
What will be your strategy in the defence space and when can we see action starting there?
The defence sector has relatively lower capital intensity, low gestation period unlike roads, minimal regulatory uncertainties and potential for superior return on equity. We have hired several experts from the defence industry at leadership positions. The size of opportunities in defence is expected to be R20 lakh crore over the next 10 years, i.e. around Rs 500 crore/day. This is part of the prime minister’s ‘Make in India’ and ‘Skill India’ programmes and we expect to see good order flows in the sector shortly.