Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Macquarie looks to sell two road assets from India infra fund

Macquarie expects the 2 deals to fetch Rs600 crore in equity value; firm to appoint bankers for the sale soon

Australia’s Macquarie Group Ltd is looking to sell its stakes in two operational toll roads in South India as the investment bank tries to deliver returns to its investors, two people familiar with the plan said. The bank will soon appoint investment bankers to find buyers, the people said, requesting to be not identified.

Macquarie Group is expecting these two road assets it purchased in 2013—the Farukhnagar-Jadcherla highway in Andhra Pradesh and the Trichy Tollways project in Tamil Nadu—to fetch a total equity value of 600 crore, the two people said. The total enterprise value of the two deals could be about 1,200 crore, one of the people said.

Selling operational road assets allow debt-ridden builders to reduce leverage, private equity investors to offer returns to their investors, and long-term investors, such as pension funds, to buy revenue-yielding assets.

In 2009, Macquarie started its first infrastructure fund in India along with State Bank of India (SBI), called the Macquarie-SBI Infrastructure Fund (MSIF). The fund, which planned to raise $3 billion, aimed to invest in infrastructure projects.

SBI and Macquarie also jointly operate a domestic investment entity SBI-Macquarie Infrastructure Trust (SMIT).

In 2013, GMR Infrastructure Ltd sold its 74% stake in the Farukhnagar-Jadcherla highway (GMR Jadcherla Expressways Ltd) to MSIF and SMIT for 206 crore. The 58-km project started commercial operations in February 2009 and had a total project value of 522 crore, according to GMR website.

In the same year, the Macquarie funds bought a 74% stake in Trichy Tollways Pvt. Ltd, a joint venture project of Malaysia’s IJM Corp. Bhd and India’s Shapoorji Pallonji group, for about 275 crore. The 94-km project is operational since September 2009.

Macquarie Group declined comment to Mint’s query. Email queries sent to GMR Infrastructure and IJM on Wednesday remained unanswered.

Long-term investors looking to acquire the operational road assets in India include funds such as the Canada’s Brookfield Asset Management, US-based I Squared Capital Advisors Llc, India’s IDFC Alternatives Ltd and Canadian pension funds Caisse de dépôt et placement du Québec and PSP Investments.

Unlike private equity investors who buy a stake with a target to sell in five to seven years, these new investors want to stay invested for the long term and often buy out the entire project, or take a majority stake.

Several infrastructure developers, weighed down by debt, continue to announce plans to monetize operational assets and repay creditors.

A new rule introduced in August 2015 made it easier for road operators to exit operational projects.

Global pension funds and sovereign wealth funds may invest up to $50 billion in India’s infrastructure sector over the next five years, said a March report by investment bank Ambit Corporate Finance and the UK’s City of London.

“Investors are looking at the (roads) sector positively. The pace of activity in the sector has certainly improved and the traffic uptick has happened in the past six months. The regulatory enablers put in place earlier and government’s fairly aggressive roll-out plan for roads have added to investors’ appetite," said Navneet Singh, executive director and head, infrastructure group at Avendus Capital.

The second quarter of fiscal 2016 had seen a sharp deceleration in toll-collection growth across companies due to excessive rainfall, according to a 3 June report by Phillip Capital.

“However, the last two quarters have seen growth coming back to earlier levels (of last six quarters). There was strong growth in projects across states and companies," the report said.

Macquarie is a leading owner and operator of infrastructure assets globally. Till 2013, it has invested in India through infrastructure fund MSIF and infrastructure trust SMIT, joint ventures between SBI and Macquarie with the World Bank’s International Finance Corp. as a minority shareholder.

MSIF and SMIT are separate investment vehicles managed by separate fund management companies, and can choose to co-invest in projects in India. The two funds have committed capital of about $910 million and $260 million, respectively.

In February, Macquarie Infrastructure and Real Assets (MIRA), a part of the asset management arm of Macquarie Group with over $100 billion in global assets through various funds, said it has raised $3.1 billion to invest in infrastructure firms in Asia, including India.

The investments will be made through its Asian regional infrastructure platform, which includes the Macquarie Asia Infrastructure Fund (MAIF) and specialist investment vehicles.

MAIF also holds 56.8% in Gujarat Roads and Infrastructure Co Ltd—a subsidiary of highway developer IL&FS Transportation Networks Ltd (ITNL).

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