New investments in the infrastructure sector are not likely to pick up in the near future as promoters are still waiting for a revival in demand, says Suneet Maheshwari, managing director and chief executive, L&T Infrastructure Finance. In an interview with Vishwanath Nair and Shubhra Tandon, he explains how promoters are looking at recalibrating their project portfolio rather than investing further, developments on the company?s private equity fund and the asset quality situation in the industry. Excerpts:
A number of projects have received necessary approvals from the government over the past few months. Has this translated into any new investments into the infrastructure sector?
Yes, there are a number of approvals given by the government through the cabinet committee initiative. We have started seeing the first set of results in the power sector, with some resolution on the availability of fuel. However, these are not going to create fresh investments. In most of these projects, the sponsors as well as bankers have made some investments. There was something more to happen but that has not happened so far. We can see that companies are now ready to let go of some of the projects. The lack of liquidity is forcing sponsors to rationalise and recalibrate their project portfolio.
What about projects where there have been no investments so far?
In fresh projects where neither the bankers nor the sponsors had made any investments so far, we are not likely to see any investments in the near term either. There was a very strong engine running at about 7-8%, which has now abated to some extent. Considering the current level of demand, there might be a marginal surplus in the power sector. Even in the road sector, suddenly the road traffic has fallen. So, some of the sponsors are waiting for the market to revive, before they start these new projects.
What is your advice to your clients?
We are asking them to go for rescheduling, restructuring and asset sales because only that will bring back liquidity into these companies.
Are promoters getting good valuations for these asset sales?
The general trend is that people are looking at churning their portfolio and augmenting their cash flows. From a private equity point of view, this is the time when you can get value deals. Promoters need cash and their ability to hold on to a price is not so good. A buyer can get a value deal if he takes a call on the quality of the asset and on belief that India will finally move ahead. I have my doubts about whether people are willing to sell projects at a haircut, but they may not be getting the valuations they were expecting. But the good thing is that there will be some liquidity coming back to these developers.
What are the developments on your private equity fund?
On the Indian side, we are on a fund-raising mode. But yes, we do see some traction, despite the distress that is there. There was also an overseas fund for which we have been in touch with investors. So far there have been a lot of discussions, and I don?t think India currently looks very attractive for foreign investors. Those investors are looking to buy full portfolios and manage it, rather than invest through a fund.
What about the asset quality situation? How soon can we see any revival?
I would say that things may not worsen further; however, they may take some time to revive. Once you reach a stage like this, I think the revival may take a good one year or so. I don?t see signs of green shoots now. I?ll be able to make a better comment in September about the probability of green shoots increasing.