Mumbai:Varun Bajpai, chief executive, SBI Macquarie Infrastructure Management Pvt. Ltd, aims to make the fund’s portfolio resemble “a basket of unlisted infrastructure stocks”. The largest infrastructure fund investing in India has deployed a little over $650 million across four transactions ($125 million in Moser Baer; $300 million in Viom Networks Ltd, $200 million in GMR Airports; and $30 million in Adhunik Power and Natural Resources Ltd); it has a corpus of $1.2 billion, in which State Bank of India, Macquarie Group Ltd and International Finance Corp., the investment arm of the World Bank, are the anchor investors. Bajpai explained the fund’s strategy in an interview on Friday. Edited excerpts:
Looking at the deals pipeline, how much do you think you will deploy this year?
We have a very strong pipeline and we think the environment is right for investing more capital. Currently, in excess of 50% of the $1.2 billion raised has been deployed. I wouldn’t be surprised if, within this calendar year, we invest our remaining capital, given our near-term pipeline is looking so strong. Investing in India is not difficult, the real test is being able to extract the returns on that.
What’s your expectation in terms of returns?
On a blended portfolio basis, we seek to deliver around 20% to our investors. However, this is managed around risk appetites across different sectors. Whatever returns we generate, it will be a fair balance of risk and return.
You have invested in thermal power, mobile towers, airports, metals and mining. What’s next?
The three key areas in which we have a lot of near-term interest are roads, ports and logistics.
You’ve invested in Moser Baer’s fledgling power business. What was the rationale behind this?
A vast majority of India’s infrastructure is yet to be built, which means that somebody has to fund that greenfield base. We identify companies that we think are high on governance and have all the connectivity and execution skills, even if they don’t have the track record of having done this before. Delhi airport, which is a great success, was done by a developer that had never done an airport before. We have great comfort that Moser Baer has the experience of working with foreign institutions and has run some of the best facilities on the optical media side. It may not have built a power plant but is very used to a labour-intensive manufacturing industry environment.
What are the challenges in investing in infrastructure?
The biggest challenge in investing in infrastructure today is project execution risk. While some people imagine execution just in terms of construction or land acquisition, I think it goes beyond that. What’s critical is whether you can manage manpower or have that much skilled labour. There are also environmental challenges. It’s not that the intention is not there, or the regulation is not there—the experience of doing it is not there. The people who are looking to execute these projects are not people who have run 20 roads or built power plants before.
How do you mitigate these risks?
We set out to create a diversified portfolio. We are now looking at small hydro projects and also roads, logistics and ports. If one of them did not perform in the manner that we’d hoped, by spreading the risk, our portfolio, therefore, becomes comparable to what I would term a basket of unlisted infrastructure stocks. We also seek to secure the larger deals. It means that a company large enough to take $200-300 million is already running a large business with a solid execution record and great governance practices.
Do you see coal linkages as a serious challenge for power plants?
Coal supply is a global challenge. There is excess demand and government involvement and significant regulation around its supply. There are a number of ways to source coal. You have a linkage where the government supplies the coal; you can depend on imported coal, or you can have an allocated coal block. In our case, with our investment in Adhunik, there is an allocated coal block that is being developed in partnership with Tata Steel, which is the other 50% shareholder. Adhunik is also very well located on the highway that connects Jamshedpur and Ranchi, the best cities on that route. It is located a kilometre away from the grid that is going to evacuate the power produced, it has coal supply linkage and its allocated coal block is the kind of coal we want. It also has railway links which we can use to transport the coal.
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