Infrastructure sector sees growing foreign investor interest
Pension funds, PE firms, others have earmarked billions for projects in the country
Mumbai: For global pension funds, large private equity (PE) players and patient capital investors with buckets of cash and a willingness to stay for the long haul, the Indian infrastructure sector is beginning to look like a smart option. The numbers speak for themselves. In just the past 6-7 months, such investors have tied up or are in the process to raise large sums of capital to invest in infrastructure projects, particularly roads and renewable energy. Collectively, these funds could invest a few billion dollars in India infrastructure.
The biggest among these is I Squared Capital, which is close to raising $6.5 billion for its second infra-focused fund. I Squared Capital invests in multiple geographies including India. Edelweiss Infrastructure Yield Plus Fund has commitments of around $300 million and aims to raise up to $1 billion, while the government’s National Investment and Infrastructure Fund and the UK government have committed $700 million to invest exclusively in Indian infrastructure. The platform will be managed by EverSource Capital.
Earlier this month, Canada’s largest pension fund, Canada Pension Plan Investment Board, and Allianz Capital Partners (ACP), part of insurance giant Allianz, were anchor investors to Larsen & Toubro’s (L&T) ₹3,200 crore roads infrastructure investment trust.
“India has been on our investment radar screen for many years because the economy is crucial to the global set-up. Over the last three years we looked at several transactions but we couldn’t come to commercial agreements,” said Christian Fingerle, ACP’s chief investment officer. “We liked the (L&T) investment and the portfolio. They are all operating assets with good track records and it met our stringent compliance requirements.”
“We will look predominantly now at roads, transmission and telecommunications,” Fingerle said. “We do not have specific return targets; investments are evaluated on a risk-adjusted basis. Our business model doesn’t rest on capital gain; we look to reap longer-term cash yields.”
“There is a lot of interest from investors and there will be a lot of investors who want to come to India for yields,” said Subahoo Chordia, fund manager, Edelweiss Infrastructure Yield Plus Fund. “Yield has been a driving factor globally, because investors want to see cash flows.”
Globally, investors with allocations to real assets (real estate, infrastructure and commodities) have in the last four-five years increased their allocations to infrastructure given the performance of the real estate and commodities markets.
“People are increasing their allocation to invest in infra, globally,” Chordia said. “In the last three-four years, a significant majority of the new capital invested in Indian infrastructure has been in professionally managed platforms or large corporate groups.”
“Right now, foreign investors are looking at operational projects that are free of construction and pre-development risks,” said Sandeep Upadhyay, managing director and chief executive officer of Centrum Infrastructure Advisory. “These have low risks and a moderate return profile. This is a refreshing change that’s come in the last year or so.”
“We’re seeing 8-10 marquee names investing in infrastructure, with corpuses of $500 million-1billion. I think the number of such players will increase to 20-25 in a couple of years,” said Upadhyay, who advises some of these investors. “We’re seeing growing interest in operating highway projects, renewable energy projects with lower construction risk, power transmission and in logistics, particularly in warehousing and temperature-controlled storage facilities.”
In March, the Sydney-headquartered Macquarie Group won the government’s toll-operate-transfer bid for nine national highways for ₹9,681 crore. This week, Japanese conglomerate SoftBank announced its partnership with IL&FS to bankroll its plans to build 20GW of solar power farms by 2025. The company did not give an investment figure.