Foreign investors queue up for road & clean energy assets

India’s infrastructure sector may be burdened by high debt and slowing growth, but this isn’t dampening its attraction for foreign investors. This is because not only are valuations attractive, new opportunities have also arisen in sectors such as renewable energy.

Foreign investors, especially long-only funds and large renewable players, are either snapping up assets in this segment or setting up projects in India.

Six months ago, this wasn’t the case; promoters weren’t willing to consider an outright sale of their road assets. But with interest costs biting and the rate cycle showing no sign of a turn, infrastructure developers are looking to unlock capital by divesting some of their projects to reduce stress.

FUNDS FLOW

• Government of Singapore Investment invested Rs 1,000 cr in Greenko, a renewable energy company in Mar 2013
• GE Energy Financial Services invested Rs 257 cr in Gati Infrastructure's hydropower plant in Sikkim in July 2013
• In October 2013, SBI Macquarie picked 34% stake for Rs 700 cr in a holding company of Ashoka Buildcon, which owns seven road projects
• SBI Macquarie Infra Fund in February this year acquired 74% in GMR's Farukhnagar-Jadcherla highway in Andhra Pradesh for Rs 206 cr
• Of the 80 operational road projects constructed as public-private partnerships, more than half are looking at raising capital through a part or majority stake sale
• The government is looking at attracting Rs 90,000 cr in investment through four solar ultra mega power projects

GMR Infra and JP Associates have conveyed to investors they are considering selling road and power assets to unlock capital and lower their respective debts. GMR has already signed two road deals, while JP Power Ventures is in talks with a couple of sovereign funds to sell controlling stakes in its hydro-electric power plants. Of the 80 operational road projects constructed under the public-private partnership (PPP) mode, more than half are considering raising capital through a part or majority stake sale.

In the renewable energy space, large foreign investors, be it sovereign funds, pension funds or large companies, are looking at acquiring operating assets that are relatively stress-free, or setting up new projects. Investment bankers say deals to the tune of $2 billion are in the works and will be announced soon.

Gaurav Gupta, managing director of Macquarie Capital, an investment bank, says: “As more assets are developed and operational, there will be greater interest from long-only funds. We see greater interest today than a few months ago. The interest is across sectors — renewables, transportation, etc. I think we will see deals worth a couple of billion in the next 12 months.”

In the last six months, six large road deals, together worth about Rs 6,000 crore, have been recorded and many more are in the works. Currently, operating road assets are the least stressed, which is why a lot of deals have already happened in this space. SBI Macquarie Infrastructure Fund has invested $300 million in road assets through the last nine months, which makes it one of the largest investors in the sector.

There is heightened interest in the roads and renewables sector from foreign investors. A couple of months ago, Government of Singapore Investment Corporation invested Rs 1,000 crore in Greenko, a Hyderabad-based renewable energy company.

The company owns and manages renewable energy assets across several Indian states. SunEdison, an American company that owns solar power assets in India, is looking at joint venture partners to set up solar plants in the country. In July this year, GE Energy Financial Services invested Rs 257 crore in Gati Infrastructure’s hydro power plant in Sikkim.

Raja Lahiri, partner for transaction advisory services at Grant Thornton, says, “Clean energy is one of the hottest sectors globally and foreign investors are looking at India because the government is in the process of signing a lot of power purchase agreements in the sector.”

As the government eyes power purchase agreements and considers giving sops to investors, a spate of deals is in the pipeline. The government plans to draw Rs 90,000 crore in investments through four solar ultra mega power projects. Investment bankers say solar power companies such as First Solar and SunEdison are considering setting up solar power plants in India.

Rahul Gupta, director at Rays Power Experts, which operates and develops solar power plants for its customers, says, “We are in talks with some foreign investors and some investment opportunities are expected to open up in the coming months, as the government is expected to sign power purchase agreements in the renewable energy sector. Foreign investors are interested in renewables because the IRR (internal rate of return) works out to 14-15 per cent and even if they hedge for currency risks, the returns are lucrative.”

Also, there are no fuel linkage woes in the renewables space. And, the government is fast-tracking clearances before inviting companies to sign power purchase agreements.