Actis bullish on infra in downtime

Even as capital markets and bankers are turning away from the infrastructure sector, British private equity firm Actis says it sees opportunities in the sector in India.

The London-headquartered company says that it is planning to make at least two investments in the power sector in the next few months. These ventures will come from the 2004-founded firm’s $750-million Actis Infrastructure-II Fund that invests in emerging markets like Africa and South America, in addition to India. Of this, almost 40 per cent has been dedicated to India market.

The $4.8-billion firm’s investment strategy to look at the power sector will remain steady, in spite of troubles that the power sector is facing — uncertainty of fuel, financial of state electricity boards, steadily increasing costs of financing, land acquisition troubles as well as difficulty in procuring environmental and other clearances.

“The public equity market is currently not open for infrastructure developers,” notes Sanjiv Aggarwal, a partner at Actis looking at infrastructure investment for the PE firm in India and south Asia. “This has led to strong developers who were planning IPOs to seek private capital.”

For Actis, the investment focus within the power sector would be in generation, which includes a mix of thermal, and renewables with a specialised thrust on wind and solar projects. In addition, it is looking at transmission and distribution sectors as well.

Aggarwal is looking at the glass as half full. “The macro environment for the energy sector has a number of positives, though there are strong head winds currently. There is a large demand-supply gap. The economy, even if it is growing at 7.5-8 per cent, will result in a corresponding growth in electricity demand,” he says, adding that the regulatory mechanism too has improved over the years, making the sector a good long term investment destination.

However, going ahead, the firm will now access a number of macro environment which surround the success of a power project.

The firm is seeking opportunities where a project has captive coal source, and most of the land, and other approvals in place. Renewable generation is focus as well.

The current environment calls for enhanced due diligence on thermal projects especially on fuel sources. “One cannot find a perfect a perfect investment where everything is nicely wrapped with a ribbon on the top,” says Aggarwal. “As equity investors we have to identify risks and price them. What did come as a bit of surprise in the recent past was the fuel issue.”

The firm has so far made two major investments in India -- $80 million in the power business of Hyderabad-based GVK Power and Infrastructure and $77.5 million in a $200 million joint venture with Tata Roads.

As a part of its roads joint venture, the firm is actively bidding for road projects and is concerned at the strong competitive intensity in NHAI bids. “We don’t know why people are bidding at such aggressive levels, but we are hopeful that we will win projects at reasonable returns once the current phase settles down,” says Aggarwal.

The joint venture has already bagged a project — to develop a 110-km road on the Pune-Sholapur highway.