Long-term investors acquiring operational infrastructure assets are slowly starting to replace existing managements with former executives who may be able to help run these projects better.
Canada’s Brookfield Asset Management, US-based I Squared Capital, IDFC Ltd’s asset management arm IDFC Alternatives and Canadian pension fund PSP Investments have all started hiring experienced infrastructure sector executives who not only understand the acquired assets, but are also well-versed in performing due diligence for potential acquisitions and dealing with authorities such as the National Highways Authority of India (NHAI).
Brookfield, which acquired nine assets from Gammon Infrastructure Projects Ltd last year, has hired former Gammon Infrastructure managing director Parvez Umrigar to spearhead its infrastructure portfolio in India, according to at least two people aware of the matter.
Umrigar confirmed that he has been appointed managing director and chief executive officer (MD and CEO) of Brookfield’s subsidiary Peak Infrastructure, which houses the nine Gammon assets purchased as part of a Rs.563 crore deal last year, but declined to comment further. Peak will continue to be the holding company for any new infrastructure assets that Brookfield acquires over time.
Umrigar spent nearly a decade at Gammon Infrastructure between 2001-2010 and went on to work at Enam India Infrastructure Fund, followed by Welspun InfraTech Ltd (now merged with Welspun Enterprises Ltd) and Piramal Enterprises Ltd, where he helped scout for buyouts of road assets.
Anuj Ranjan, CEO of Brookfield in India, did not respond to an e-mail seeking comment.
“Apart managing the Gammon portfolio, Umrigar will help Brookfield expand in India by way of new acquisitions. He understands the Gammon portfolio very well and his experience of working on deals and dealing with NHAI will come in handy,” said one of the people cited above.
Brookfield is one of the potential buyers in talks with Anil Ambani-led Reliance Infrastructure for its road assets, Mint reported on 11 February.
Infrastructure consultant Vinayak Chatterjee, chairman at Feedback Infra Pvt. Ltd, expects this trend to get more pronounced as investors look to buy operational assets.
“It’s a very clear direction that international and domestic private equity funds, provident funds and institution investors acquiring infrastructure assets are adopting; they are not merely portfolio investors. The moment you own an asset, you need to run it, whether it’s a power plant or a road or an airport. So to run it you are going to be looking for people who are sectoral specialists, who know how to run and manage infrastructure. So I can only see this trend increase,” Chatterjee said.
Peers I Squared Capital and IDFC Alternatives have also acquired road assets in recent months and are in discussions with several other sellers. They, too, have hired senior executives from road and power companies to manage their portfolio of acquired assets.
“IDFC Alternatives’ infrastructure fund has been acquiring operating roads assets, so we have created a separate management company and we today have a 20-member team entirely recruited from the industry. These are senior executives, who have worked in infrastructure companies such as GMR Infrastructure Ltd, IJM (India) Infrastructure Ltd, Hindustan Construction Co. Ltd, Essel Infraprojects Ltd; so we have a cumulative experience of more than 80-100 years of operating and managing toll assets,” said Narayanan G., partner-infrastructure at IDFC Alternatives.
This team helps with due diligence in acquisitions by assessing road quality and interfacing with the lending team, the various authorities, NHAI and the banks, he said.
The fund is also actively looking to buy renewable energy assets. Narayanan said that IDFC Alternatives will create similar teams of professionals for its transmission and renewable energy platforms, which it is building. “As we keep acquiring controlling stakes in operating assets, we will need skill sets to run these assets,” he said.
PSP Investments is also likely to hire a roads sector executive to run its three road assets, which it took over from Grupo Isolux Corsan last week, the people cited above said.
In November, PSP said it would buy 49% in Reliance Infrastructure’s power transmission and distribution unit in Mumbai and surrounding areas. PSP did not respond to an e-mail query from Mint.
Cube Highways and Infrastructure Pte. Ltd, a subsidiary of I Squared Capital, which buys operational road assets, has hired executives in senior roles. Chief executive Harikishan Koppula Reddy, operations and maintenance head Raman Tyagi and tolling systems specialist Vipin Kumar joined after spending several years in various road companies.
“It’s a positive trend… Today there are more operating assets and under-construction assets as opposed to five-seven years ago, when the bulk of projects were yet-to-be-built. From that perspective, financial investors will need a fair bit of in-house capabilities to manage their portfolio,” Manish Agarwal, partner and leader-infrastructure at PwC India, said.
Debt-laden infrastructure developers in India have been hit in recent years by an economic downturn that crimped their cash flows. Several infrastructure developers have announced exits from individual highway projects to monetise operational assets and repay creditors. Several others continue to look for buyers of their ailing power assets.
This has attracted the attention of sovereign wealth funds, global pension funds, insurance firms and infrastructure-focused funds looking to buy a majority stake in operational assets with a target of 15-20% gross returns for their investors. Unlike private equity investors, who buy a part stake, the new investors are looking to invest for the long term and often buy a 100% stake.