Mumbai: Essel Highways Ltd, a unit of Essel Infraprojects Ltd, is in talks to raise Rs400 crore from special situations fund Aion Capital Partners, two people aware of the development said.
On 26 May, the Essel Highways board approved a proposal to raise as much as Rs1,480 crore through private placement of debt securities. On 12 August, Mint reported Essel Highways raised $85 million from Goldman Sachs. The Aion deal, too, is part of this fund-raising.
“Talks are at an advanced stage between the two parties and are expected to be closed soon. The investment will happen via structured debt products,” said one of the two people cited above, requesting anonymity as talks are private.
Investors are looking at an internal rate of return of close to 16%, he said.
“For Essel Highways, a major purpose of these funds is to acquire road assets. They are currently the most active strategic buyer in the market,” said the second person, also requesting anonymity.
A spokesperson for Essel Infraprojects declined to comment on the development but said the firm “engages various group of investors which is a normal course of business”.
Aion Capital Partners declined to comment.
At the time of announcing the Goldman Sachs investment, Essel Infraprojects had said the funds will be used to finance new projects and strategic acquisitions. “As new corporate milestones are achieved, the remaining balance of the debenture issuance is expected to be subscribed to by other financial institutions and investors,” it said.
Essel Highways, which was set up in 2007, has assets valued at about $1.8 billion. It has 14 road projects totalling 4,500km, of which 10 are operational. These include eight state highway projects and two national highway projects, which are operational. The firm also has three other national highway projects and one state highway project, which are under construction.
With its planned war chest of $220 million, Essel Highways will enter a market that continues to be predominantly a buyer’s market, said experts.
“The road sector continues to be a buyers’ market as most road companies continue to look to divest assets and there are only a handful of funds which are active buyers,” said Vishwas Udgirkar, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.
There are several kinds of sellers in the road sector, said Udgirkar. “Several infrastructure firms are looking to offload their small roads portfolio and focus on other areas where they have a larger exposure. There are also several companies who are facing liquidity shortages and, hence, are in the market to sell assets. There are several stressed assets in the market,” he said.
Aion is an India-focused fund established by an affiliate of Apollo Global Management, LLC, together with ICICI Venture Funds Management Co. Ltd. The Aion Fund, with approximately $825 million in committed capital, is currently one of the largest private equity funds in India.