Cautious but Positive

Private equity investors’ confidence soaring

For the past couple of years, foreign investors have perceived India as a rapidly growing market replete with opportunities. From a wait-and-watch mode to making controlled investments, private equity (PE) investors are upping the ante in the country’s infrastructure space. While PE players are still averse to assuming greenfield/construction risks, stable operational assets are high on their radar and are being eyed through various acquisition strategies. The sanguine sentiment is expected to stay as the Indian market is maturing both in terms of policy framework and infrastructure growth.

PE trends

From 2014-15 to 2019-20 (till November), 221 PE deals worth over Rs 2 trillion took place in the infrastructure sector. This is far higher than the investments witnessed in the five years prior to this. During 2009-14, PE investments, though more in number, were only 30-40 per cent of the Rs 2 trillion recorded in 2014-19. Infrastructure PE deals have been rising since 2014-15 reflecting the growing presence of PE firms in this space. Investments reached an all-time high crossing Rs 700 billion in 2018-19 across 53 deals. The first eight months of 2019-20 were also abuzz with PE activity with 36 deals leading to an investment of around Rs 530 billion.

Sectors such as power, renewables, roads and logistics generated a lot of interest among PE investors. These sectors collectively accounted for about 70 per cent of the investments during 2014-15 to date. In the past 15-18 months, the aviation, telecom, and oil and gas sectors also saw some big-ticket deals. Besides, average and median deal sizes have also increased from Rs 4.08 billion and Rs 2.54 billion, respectively, in 2014-15 to Rs 16.11 billion and Rs 5 billion, respectively, in 2019-20 (till November). This is reflective of the fact that investors with deep pockets prefer to take control of companies/ assets in which they are acquiring stakes.

Global investors, including sovereign wealth funds (SWFs) and pension funds, have been active participants in the infrastructure sector in the past few years. As opportunities in developed economies are drying up, India has become a favoured investment destination. Singapore-based GIC, the Abu Dhabi Investment Authority (ADIA), Singapore-based Temasek Holdings, Canada’s Caisse de dépôt et placement du Québec, and the Canada Pension Plan Investment Board (CPPIB) have invested huge amounts in recent years. Yield-generating assets (such as in roads and highways) as well as stressed assets (such as in power and steel) are finding takers. The Insolvency and Bankruptcy Code (IBC) has facilitated the entry of PE firms into the stressed assets market both at the insolvency as well as the pre-IBC stage.

Increasing buyouts

Globally, PE funds have expanded in size and their capacity to invest has increased commensurately vis-à-vis 10-15 years ago. Moreover, businesses have matured amidst a challenging global economy, and this has necessitated the participation of experienced PE firms possessing managerial and operating expertise. The strategy of large PE funds has changed in favour of controlled investments wherein they can chart out their entry and exit timing. The holding period for infrastructure assets has increased and PE funds look to exit after six to eight years rather than the previous three to five years. Other tailwinds such as succession issues within promoter families and the IBC are also driving buyout transactions. PE investors view the economic slowdown as more cyclical than structural in nature and hence are keen on investing in stable infrastructure assets. Marquee investors such as Macquarie, Brookfield, Goldman Sachs, Warburg Pincus, KKR, etc. have pumped significant amounts across sectors.

Infrastructure investment trusts (InvITs) are emerging as a popular asset class among global investors. Brookfield’s acquisition of two assets via InvITs – Reliance Industries Limited’s East-West gas pipeline for Rs 130 billion and Reliance Jio’s tower assets for Rs 252.15 billion – is acclaimed to be the biggest PE deal in the country. The InvIT is a great product offering revenue-generating operational assets coupled with a tax-efficient stream of income that has the potential of attracting passive capital as well. Other evolving structures such as the toll-operate-transfer (TOT) model have also piqued institutional investor interest. The award of the first TOT bundle to Macquarie, which quoted an offer of Rs 96.81 billion, is a remarkable development setting a positive tone for public asset recycling.

Private equity exits

PE exits in the infrastructure sector have been significantly lower over the years except for 2017 and 2018 when they crossed the $1 billion mark, according to EY. The majority of the exits have been in the power sector with a few large exits in the telecom sector, primarily in the listed space. In terms of the modes of exit, open market and strategic exits remained the most preferred options, while initial public offerings were the least preferred due to volatility in the stock market. Some of the key exits in the past 15-18 months are True North’s exit from Innovative B2B Logistics Solutions, the exit of SCI Asia and Infrastructure Leasing & Financial Services PE from Ramky Enviro Engineers, and the exit of the Macquarie-SBI Infrastructure Fund, Standard Chartered Private Equity and others from GMR Airports.


The PE deal environment will remain healthy in the medium term with the share of buyouts in the total PE investments likely to soar. Co-investment as an investment strategy may be witnessed in the long term. Pension funds and SWFs can partner with PE funds to take exposure in mature infrastructure projects. Besides roads, tower and fibre assets and oil and gas pipelines with reliable counterparties are also expected to be part of the PE strategy going forward. Slowing government spending on infrastructure, limited headroom available with banks and stretched developers have vacated capital in infrastructure companies/assets. PE players have the ability to pour in the required funds and clock high returns. Sectors such as renewable energy with shorter development cycles may attract PE funding at the construction phase as well. However, the status quo will be maintained for risky assets such as toll roads and gas pipelines where PE players enter at the operations and maintenance stage. Thus, the predictability of the time horizon and visibility of revenues will continue to drive investment decisions of PE firms in India’s infrastructure story.

Ishita Gupta



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