Mumbai: Morgan Stanley Infrastructure Partners (MSIP), a $4 billion (Rs 18,120 crore) global infrastructure fund, announced a $400 million joint venture (JV) with Spain-based Isolux Corsán on Tuesday that will invest in roads—one of the largest investments in the business by a private equity (PE) firm. MSIP and Grupo Isolux Corsán, the parent of Isolux Corsán, will contribute $200 million each to the JV.
“We are trying to develop a platform,” said Gautam Bhandari, managing director of MSIP India. “We will give them (investee companies) balance sheet strength and, in a partnership method, invite other entrepreneurs to consider this partnership.”
Apart from ongoing projects under construction, the JV will also bid for new projects.
Isolux Corsán has transferred three of its projects, estimated to cost over $1.6 billion, to the JV. These are a 94km, two-to-six lane project on National Highway (NH) 8 from Kishangarh to Beawar in Rajasthan; a 133km, two-to-four lane project on NH6 from the Maharashtra-Gujarat border to Hazira in Gujarat, and a 192km, four-to-six lane project on NH2 from Varanasi to Aurangabad in Uttar Pradesh and Maharashtra, respectively.
The projects were awarded through the build-operate-transfer (BOT) programme of the National Highways Authority of India.
Explaining the rationale behind choosing a foreign partner over local ones, Bhandari said: “We did look at a lot of local developers, but the key was a disciplined approach to concessions.”
Isolux has built several roads in other emerging markets such as Brazil, Mexico and Spain, markets similar to India. The 75-year-old company has been in India since 2003.
Deals such as this are becoming a trend, said an expert.
“A lot of PE firms are looking at such large platform deals, where they tie up with a company in the hope that they are funding a part of the projects under construction and can bid for more projects in the future,” said Bhavik Damodar, executive director and head of infrastructure transaction services at audit and consulting firm KPMG India.
In 2010, Actis and Tata Realty and Infrastructure Ltd formed a JV to invest $2 billion in road projects. Similar deals include 3i Group Plc’s investments in Soma Enterprise Ltd and KMC Constructions Ltd, and Xander Group Inc. and Norwest Venture Partners’ investment in Sadbhav Infrastructure Project Ltd.
In 2009, the roads business attracted investments worth $35.44 million, which increased to $128.08 million in 2010. Thus far in 2011, there have been three PE deals worth $156.34 million, according to data from VCCEdge, a financial research platform.
“This transaction generated significant interest among global investors due to the attractive BOT portfolio and the sheer scale of the transaction (this is the largest highway holding company PE deal in India till date),” said Kuljit Singh, head of transaction advisory services (infrastructure) at audit and consulting firm Ernst and Young, which was financial adviser to Isolux on the deal, and earlier helped raise $78 million for the highway holding company of Tata Realty and $120 million for the BOT assets of L&T Infrastructure Development Projects Ltd.