Edelweiss Alternative Asset Advisors Ltd has hit the fund-raising trail as it looks to raise 4,000-4,500 crore for its infrastructure fund Edelweiss Infrastructure Yield Plus Fund, said a senior executive of the Edelweiss group.

Edelweiss marked the first close of the fund in May, raising around 2,000 crore and has set itself a target of raising 6,500 crore for the infrastructure fund.

“Post the first close, our main focus was on making a few investments. Since then, we agreed to acquire four transmission assets. We have re-initiated our marketing efforts, and apart from top-ups from the existing investors, we are seeing significant interest from both domestic and foreign investors," said Subahoo Chordia, head of Edelweiss Infrastructure Yield Plus Fund.

In October, Sekura Energy Ltd, an entity owned by the Edelweiss infra fund, agreed to buy four power transmission assets of Essel Infraprojects. While two are operating, the other two are under construction and will be acquired post commissioning. The acquisition makes Edelweiss the only financial investor in the country to own operating transmission assets.

Chordia said transmission assets are significantly attractive for the fund, given the long cash flow profile of the asset class.

“It has a very long, predictable cash flow profile (annuity-like cash flow for a 35-year period). Payment mechanism is very strong. Operations and maintenance cost are very low for these assets. This gives investors like us a very long-term predictable cash flow profile from these assets. As per Crisil as well, transmission is the most attractive risk-return asset class in infrastructure, post commissioning," he said. The fund is also actively scouting for road assets to buy. It, however, prefers annuity roads over toll roads, said Chordia.

In an “annuity road", the developer is paid an annual sum toward the project cost by the commissioning authority.

Toll roads, where the developer/owner recovers project cost through collecting tolls, are considered more risky as revenues depend on traffic.

“We prefer NHAI (National Highways Authority of India) assets. Annuity assets provide long term, predictable cash flows with revenue counterparties (the party which pays the road developer) like NHAI. On the other hand, toll assets need a very detailed analysis on traffic assumptions depending on the micro-market and the fact that Indian network and transport mode is likely to evolve post GST, Private Freight Terminals, DFC (dedicated freight corridors), etc," he said.

While the fund focuses on annuity roads, it will also selectively consider toll roads, he added.

Chordia believes that the roads market continues to be a buyer’s market. “In our view, there are limited buyers for these assets and within that universe, certain buyers are both constrained by size of assets/minimum ticket sizes, as well as having to choose between bidding and buying. This offers an opportunity for a fund like ours to invest in and aggregate a portfolio of quality road assets that are operating," he said.

Apart from transmission and roads, renewable energy is another asset class the Edelweiss fund is bullish on. The firm believes the euphoria around the sector has cooled down in recent months and valuations have become reasonable for buyers.

“Valuations had moved up earlier on account of excessive euphoria in the sector. With several developments impacting the sector including postponement/shelving of several IPOs, higher debt costs and larger supply of assets combined with fewer buyers, the valuations have now become reasonable," said Chordia.

Valuations, which a few months back were driven by profit multiple and growth due to the large amount of capital chasing the sector, should now be led by fundamental cash flow profile and risks of the underlying assets, he added.

“This is similar to the history of many asset-led sectors where valuation evolved over a period of time from growth multiple to fundamentally cash flow-driven approach. We believe that select asset sales for well-built projects will happen and will be driven by requirement of certain developers to recycle capital to build newer capacities and divestment of non-core businesses," said Chordia.

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