PE firms eye investments in roads sector

PE firms eye investments in roads sector

Bangalore: Private equity (PE) firms have started showing interest in India’s roads sector as the government draws up an ambitious plan to upgrade highways.

Tata Realty and Infrastructure Ltd, the real estate and infrastructure development unit of the Tata group, plans to set up a holding company in partnership with PE firm Actis to bid for contracts in the roads sector, at least two people familiar with the matter said.

Actis is looking to invest around $200 million (Rs892 crore) in a phased manner in the holding company that will house all the road projects developed by the entity, one of the persons cited above said on condition of anonymity. The investment by Actis will be staggered depending upon projects won, the person said.

Tata Realty and Infrastructure is currently developing the 110 km-long, Rs1,371 crore four-lane highway between Pune and Solapur in Maharashtra and is bidding for other road projects tendered by the National Highways Authority of India, or NHAI, and state governments. The Pune-Solapur highway will be completed in May 2012.

Over the next three years, an additional investment of nearly Rs3,500 crore will be made in the highway development programme of NHAI and in states such as Maharashtra, Gujarat, Rajasthan, Punjab, Tamil Nadu, Karnataka, Madhya Pradesh and Andhra Pradesh, Tata Realty and Infrastructure said on its website.

Sanjay G. Ubale, managing director and chief executive officer of Tata Realty and Infrastructure, did not respond to calls made to his mobile. Actis was not immediately available for comments.

3i Group Plc, the London-based PE giant, is investing Rs360 crore in a unit of Soma Enterprises Ltd, the Hyderabad-based engineering and construction firm that develops and runs highways.

Soma Enterprises has bundled investments in highway projects it is operating or building into a holding company called Soma Highways (Toll) Projects Pvt. Ltd in which 3i will invest.

In February, the Foreign Investment Promotion Board or FIPB, the agency that clears overseas investments into India, approved the investment.

However, A. Maganti, chief executive officer of Soma Enterprises, said that the “deal has not been closed yet".

“We are waiting for approval from NHAI," he said by phone from Hyderabad on Wednesday.

Analysts say PE investors are eyeing the highways sector now because the model concession agreement (MCA) has become clearer and more favourable to developers. MCA is a document that sets out the terms and conditions of a highway contract.

“Build, operate and transfer highways projects are a big opportunity for investors right now in terms of the number of projects that are to be bid out over the next five years," said Maganti.