The infrastructure sector raised a total of $3.49 billion across 33 transactions in FY17 compared with $2.98 billion raised in 31 transactions in FY16, highlighting the growing number of deals in the sector, according to data from investment bank Equirus Capital. The majority of private market transactions in the fiscal ended 31 March were led by the power, roads and renewables sectors and, within those, about 88% of the transactions were through the mergers and acquisitions (M&A) route with the remaining 12% through private equity (PE) investments, the data showed.The value of private equity transactions in FY17 has fallen to $666 million compared with $1.11 billion in FY16, signalling that investors preferred buyouts over PE investments, according to the data.
Capital market activity during FY17 was subdued with only two companies—roads developer Dilip Buildcon Ltd and solar energy firm Azure Power Global Ltd—listing their shares publicly in the Indian and US markets, respectively. In comparison, FY16 saw eight capital market transactions, the data showed. Deals, particularly in the roads and renewable energy sectors, are set to increase as companies put dozens of assets on sale, Mint reported on 15 January. (bit.ly/2mwJBWC) The government had in 2015 approved easier exit options to help road developers monetize their operational highway projects two years after the completion of such projects, irrespective of the year in which the project was awarded. This has helped debt-laden Indian infrastructure developers monetize assets and repay creditors. Many renewable energy firms, on the other hand, are evaluating fund-raises and going public.
“The M&A opportunities in the road sector are the highest among various infrastructure sub-sectors with around 88 operational national highway projects totalling 7,192km with a total project cost of Rs693.27 billion and median operational track record of four years,” said Shubham Jain, vice-president and sector head, corporate ratings at ICRA Ltd. Healthy growth in traffic and decline in interest rates are expected to improve valuations for road projects and accelerate M&A activity in the sector, ICRA said in a report on Wednesday.
“Asset sales in the road sector have picked up over the last 24 months with the relaxation in exit policy. Sponsors in around 20 road assets involving a total cost of Rs123.27 billion have monetised their assets as opposed to around Rs70 billion in the preceding 50 months,” the report said. Funds such as US-based I Squared Capital, Indian asset manager IDFC Alternatives’ infrastructure fund, Canada’s Brookfield Asset Management, Australia’s Macquarie Group, and the Canadian pension funds Canada Pension Plan Investment Board (CPPIB) and Caisse de Depot et Placement du Quebec (CDPQ) have committed large investments in the sector and are looking to buy assets across roads, thermal power and renewable energy to build their own portfolio in India.