M&A and InvITs to account 12% of total infra fund requirement

Funds amounting to Rs 400 billion will be raised by the infrastructure sector through mergers and acquisitions as well as InvITs, this year, contributing to about 12 per cent of the total equity requirement in this industry, says a report.
According to India Ratings & Research, infrastructure deals especially in road sector in the form of Infrastructure Investment Trusts (InvITs) is likely to gain traction in 2017.
"We estimate Rs 0.4 trillion (Rs 400 billion) of funds to be raised by infrastructure sector from 25 major mergers and acquisitions (M&A) and InvITS in 2017," the rating agency said in its latest report.

Further, it said an analysis of 66 large borrowers in the infrastructure sector reflected that "the deals would contribute only 12 per cent of the total equity requirement of Rs 3 trillion - Rs 4 trillion to make it sustainable".
As per Ind-Ra, the funds raised through M&A and InvITs could support several cash strapped infrastructure developers.
Segment-wise, Ind-Ra expects Rs 173 billion to be raised by performing assets in the road sector through M&A deals and InvITs in 2017, due to monetisation of road projects (toll operate transfer) and tax efficiency.

"This contributes one-third of the total equity need to deleverage to a sustainable level," the report said.

It noted that the segment is likely to benefit from the Union Budget 2017-18 budgetary allocation of Rs 900 billion for road and highways, with an aim to stimulate private sector participation.
The thermal power segment is likely to continue witnessing domestic consolidation this year.
Noting that the segment has been hurt by weak cash flows and poor credit profile of distribution companies, Ind-Ra noted that "an increase in the industrial electricity demand, a rising pace of signing of new power purchase pacts and successful implementation of Ujwal Discom Assurance Yojana scheme will aid the ailing sector from a further distress".

"A potential equity of Rs 60 billion is likely to be unlocked from M&A deals in the thermal power sector," Ind-Ra said adding that the amount is a negligible 4 per cent of the entire equity requirement.
On the renewable energy front, Ind-Ra expects Rs 69 billion of equity released from this segment and would contribute one-third of the sector's total equity requirement to deleverage to a sustainable level.
Besides, M&A activities and InvITs in other sectors such as transmission, airport and ports are expected to unlock equity worth Rs 59 billion.