The company signed an agreement with SBI Capital (SBI Cap) on Thursday, whereby it has mutually agreed to engage on a preferred relationship basis for advisory services for sale of road projects which will go through SBI Caps.
Parvez Umrigar, co-head (structure investment group) at Piramal Enterprises said on phone that around 200 road projects with a total equity investment of $10 billion or around R60,000 crore is up for sale in India. Commenting on the partnership with SBI Cap, Umrigar said that because the merchant banker was a subsidiary of State Bank of India and had relationships with other banks, a number of proposals entailing sale of road projects were handled by it.
Through this partnership, Piramal Enterprises will get a preferred look into such proposals and if any of them made business sense to the company, SBI Cap would also assist in obtaining necessary approvals to close a deal.
The road sector in India has been going through a rough phase over the last two years as an economic slowdown hit traffic movement affecting toll collections for developers of such projects. Lower-than-expected revenues have impacted the debt-servicing ability of these companies. In such an environment, developers are being forced to exit road projects.
Piramal Enterprises structured investments division will be looking at picking up stakes anywhere between 51% and 74%, making it the majority holder in such road assets. The company expects an internal rate of return of around 16%, Umrigar said. The partnership with SBI Cap will be executed through Piramal Structured Investments, an entity within Piramal Capital, which is a part of Piramal Enterprises.
In an interview to FE in September 2013, Jayesh Desai, head of investments at Piramal Enterprises had said that the company has cash of Rs 10,000-12,000crore, with which it intended to look at investment opportunities in the infrastructure space over the next five to seven years.
"This association with SBI Cap is a step further in that direction," Umrigar said.
Piramal Enterprises, through its structured investment group, aims to fund infrastructure projects with a ticket size of around $100 million. It has already invested over Rs1,000 crore in two separate transactions a Rs550 crore investment in a subsidiary of Hyderabad-based Navayuga Engineering Co, and another Rs500 crore investment in Green Infra, a wind power producer where IDFC Private Equity is the major investor.