Infrastructure investors see the next major opportunity in stressed asset space
Infra sector has come a long way in the last decade in terms of deployment of capital and technology
India’s infrastructure sector has come a long way in the last decade in terms of efficient deployment of capital and technology. However, while some sectors have raced ahead, others have a lot of catching up to do, according to experts in a panel discussion on Infrastructure: The opportunity in crisis, moderated by Bhavik Damodar, partner and chief operating officer- advisory KPMG India.
“Some of the transactions we’ve seen of late are of high-quality capital coming into the country and going into these assets through platforms with long-term mindsets. Some of this is happening because of stress, some through bilateral transactions," said Sujoy Bose, MD & CEO, National Investment & Infrastructure Fund.
“The general point is that infra in India is a very large opportunity and several international investors – pension funds, investment funds – have figured this out, especially at a time when OECD yields have dropped. India is also one of the most stable markets from the regulatory standpoint," he said.
Infrastructure investors see the next major opportunity in stressed asset space.
“The Indian infra sector has been stressed for a while and the front-end has largely been capitalised on. At GIP, we’ve collected almost a $1 billion of good assets from stressed sponsors. We’ve built platforms and we’re in the process of divesting one of the platforms, so the value creation is evident. The next opportunity is the stressed asset space. That’s what we’ve seen with the IBC and the direction from the government to fix this. If a sponsor takes a haircut on the liability, we’re happy to buy assets but that’s a difficult proposition for sponsors," said MK Sinha, Managing Partner & Co-Head India, Global Infrastructure Partners.
According to Dhanpal Jhaveri, managing partner, Everstone Capital and CEO, EverSource Capital, the renewable energy opportunity in india continues to be significantly attractive and large.
“From an India perspective, energy demand, supply and the commercialisation of climate saving technology is important. We’re seeing 9% plus actual demand growth in India. We require significantly more capacity in place to serve the energy need while supply has been historically been fossil fuel-based. We’re going to see a massive multiplying effect in solar and the cost of setting up plants is coming down dramatically. This trend to green energy is irreversible."
The roads sector too is expected to present a large number of opportunities in the coming years.
“This is one sector that invites capital. This is the sector that has evolved into a much more mature sector. People are not chasing opportunities at cutthroat returns and a lot of churn is happening here. With the toll-operate-transfer system, the returns are based on the bids you make and you will always find investors who want to balance their toll portfolio with an annuity stream. We’re seeing a good pipeline coming through in the next 2-3 years," said Deep Gupta, MD, Macquarie Infrastructure & Real Assets
Despite the opportunities, challenges remain high in Indian infra, said Sanjiv Aggarwal, Partner – Energy, Actis.
“India is not an easy market to execute projects in and we’re seeing this going forward as well. Challenges include the AP government recently asking for feed-in-tariffs power purchase agreements (PPAs) to be reviewed. Gujarat now has a law which says that only projects that have PPAs with the local government can get land. The broad momentum in this sector will continue but investors need to be prepared for challenges that will keep coming their way."
Lack of capital for greenfield construction of infra assets is also a major concern.
“We have a shortage of money for assets that need to be built. Banks can’t finance this and there is a forest of regulations to deal with. The fact that this delta exists shows how far we still have to go. If infra investors are freer to think about how they deploy capital than the variety of legal and concession risks they might face, that would be the ideal situation,’ said Harsh Pais, Partner, Trilegal.
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