Business groups hike infrastructure investments
The renewed interest comes at a time when opinion polls predict a change in govt, which may revive growth
Mumbai: Indian business groups are stepping up investments in the infrastructure sector, either directly or through infrastructure debt funds, in anticipation of an upturn in the economy and greater ease in executing large public works.
The Tata group, the Aditya Birla Group, the Piramal Group and Larsen and Toubro Ltd are among the entities that have announced new infrastructure projects or an intention to increase investments in existing ones.
High borrowing costs, delays in securing mandatory government approvals and completing land acquisition, and constraints like fuel shortages have stalled many infrastructure projects including roads and power plants.
The renewed corporate interest in the sector comes at a time when India is in the midst of a general election that many analysts and opinion polls predict will lead to a change in government and put the economy on the path of recovery after two years of anaemic growth.
A senior Tata Housing Development Co. Ltd executive, requesting anonymity, said his company would invest around Rs.1,200-1,500 crore in the current fiscal across various projects.
Tata Housing will spend Rs.24,000-26,000 crore over the next two-three years on land and construction costs for the 55 million sq. ft it is developing, managing director and chief executive Brotin Banerjee said in June 2013.
Another Tata group company, Tata Projects Ltd, also has significant expansion plans.
“Infrastructure sector would be a sector of choice, for getting India back on the growth track. Tata Projects will focus on power generation, transmission, railway, metal and minerals, water and waste water, oil gas and hydrocarbons, urban infrastructure and quality services inspection industries,” said a Tata Projects executive who also requested anonymity.
He said the addressable size identified by Tata Projects in the next 3-5 years is about Rs.80,000 crore to Rs.1 trillion every year. The company expects the addressable market to grow 6% every year on average.
In June 2013, The Tata group said it had plans to invest about Rs.48,000 crore in three of its unlisted infrastructure companies over the next five years, aiming to increase the size of its combined business by more than three times.
Projects under the ambit of Tata Projects, Tata Housing, and Tata Realty and Infrastructure Ltd would be of the order of Rs.70,000 crore by 2019, from an estimated Rs.20,000 crore presently, the managing directors of the three companies said at a joint news conference then.
The group is also looking to invest in infrastructure companies through Tata Opportunities Fund—its private equity arm.
According to Padmanabh Sinha, managing partner, Tata Opportunities Fund, the services, manufacturing and infrastructure sectors are of interest and the private equity fund has considered a couple of infrastructure deals. The fund typically looks to provide growth and buyout capital for deals ranging from $50-200 million (around Rs.300-1,200 crore).
Analysts say the interest from the private sector is essential to give infrastructure a push. “We are witnessing strong sentiment and renewed interest in Indian infrastructure sector from both domestic and international investors—strategic and financial, in the anticipation of a new government which will be more proactive in policy making and implementation,” said Amitabh Sharma, partner, Khaitan and Co., a legal advisory firm.
The 12th Five Year Plan’s projection of $1 trillion in investment—with 50% of it coming from private sector—in the Indian infrastructure sector in the five years to 2017 no longer seems a stretch, Sharma added.
In November, the Canada Pension Plan Investment Board (CPPIB) and the Shapoorji Pallonji Group announced a strategic alliance to acquire foreign direct investment (FDI)-compliant, stabilized office buildings in the major metropolitan areas of India. CPPIB will own 80% of the venture with an initial equity commitment of $200 million. Other groups have chosen to invest via infrastructure debt funds.
The Aditya Birla Group has tied up with Australia-based Hastings Investment Fund to start an infrastructure-focused debt fund in India. The corpus of the fund is not yet known. According to a joint statement by the two companies, released in Australia on 28 March, Hastings intends to establish a permanent presence in Mumbai with this venture.
Groups like the Piramals have already started investing in the sector.
The group, which will make equity and debt investments of around Rs.500 crore this year through Piramal Capital, the financial services arm of Piramal Enterprises Ltd, has already funded Navayuga Road Projects Pvt. Ltd, the road development arm of Navayuga Engineering Co. Ltd, and Green Infra Ltd, an infrastructure company, Mint reported on 19 February.
Even India’s biggest engineering and construction company, L&T, has launched L&T IDF, a debt fund focusing on providing low-cost structured solutions to eligible infrastructure projects. L&T IDF has been incorporated with an initial share capital of Rs.300 crore.
According to a February report by Deloitte Touche Tohmatsu India Pvt. Ltd and Indian Private Equity and Venture Captial Association, in order to attain a 9% real gross domestic product (GDP) growth rate, infrastructure investment should be on average almost 10% of GDP during the 12th Plan, which translates into Rs.41 trillion at 2006-07 prices (real terms), as estimated by the Planning Commission of India.
At an annual inflation rate of 5%, this translates into an equivalent to Rs.65 trillion at current prices, it added.
Deepti Chaudhary contributed to this story.
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