Ashoka Buildcon to provide exit to Macquarie-SBI funds2 min read . Updated: 22 Dec 2016, 03:34 AM IST
Ashoka Buildcon MD Satish Parakh says the Macquarie-SBI private equity funds plan to sell their 34% stake in the firm's BOT road assets within a year
Mumbai: Roads developer Ashoka Buildcon Ltd will initiate talks with potential investors to provide exits to two private equity funds—the joint ventures of Macquarie and State Bank of India—that own about 34% in the company’s portfolio of build, operate and transfer (BOT) road assets.
The PE funds plan to exit the investment within a year, said Satish Parakh, managing director at Ashoka Buildcon.
The Macquarie-SBI Infrastructure Fund (MSIF) and SBI-Macquarie Infrastructure Trust (SMIT) have since 2012 invested Rs800 crore in Ashoka Concessions Ltd, roads subsidiary of Ashoka Buildcon that houses eight BOT assets under the annuity and toll-based models.
Under the BOT annuity model, a developer builds a highway, operates it for a specified duration and transfers it to the government, which pays the developer annuity over the concession period. Under BOT-toll, a concessionaire generates revenue from the toll levied on vehicles using a road.
“We will be giving exit to our existing investor SBI-Macquarie fund in about a year’s time... Their exit would be after staying with us for a period of five-six years, they have completed over four and half years already," he said.
Parakh declined to say how much the fund would get from the stake sale, but said Ashok Buildcon would initiate discussions with potential investors in about three-six months’ time. “It could then take us nine months to a year to complete the process. There could be various methods. We could get a good replacement partner; otherwise, we’ll be buying their stake out," he said.
MSIF and the Macquarie Group declined to comment.
PE investors typically look at a minimum of 12-14% growth per annum on their investment in infrastructure assets, according to an investment banker, who asked not to be named as he is not authorized to speak to reporters. A new buyer would typically look at the traffic history and cash flows of the projects before buying a stake in the portfolio, he said.
State Bank of India (SBI) and Australia’s Macquarie Group Ltd had in 2009 announced launch of MSIF for its overseas investors to invest in infrastructure projects in India. International investors had committed $887 million to MSIF while SBI had committed a direct co-investment of $150 million. MISF had raised additional $2-3 billion during 2009.
Macquarie and SBI also formed SMIT, or SBI Macquarie Infrastructure Trust, for the domestic investments in infrastructure projects.
Ashoka Buildcon, like many other operational road-asset owners, has benefitted from the rise in traffic in recent quarters. Traffic, however, is expected to be hurt in the next two quarters due to the government’s demonetization initiative. (bit.ly/2fgQkgp)
“BOT division (of Ashoka Buildcon) continues to report decent traffic growth, and refinancing of loans on some of the projects should translate into superior returns from them," Vibhor Singhal, an analyst at PhillipCapital, wrote in a 6 December report.
Funds like US-based I Squared Capital, Indian asset manager IDFC Alternatives’ infrastructure fund, Canada’s Brookfield Asset Management and Macquarie are among active infrastructure-focused financial investors who have invested in the sector and are looking to buy assets across roads, thermal power and renewable energy to build their own portfolio in India. In recent months, Canadian pension funds including Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec and Public Sector Pension Investment Board have started investing in the Indian infrastructure across roads, power and other sectors.
Ashoka Buildcon is also in the engineering, procurement, and construction business for development of roads and power distribution projects.