Over the past few years, India has become one of the favoured destinations for infrastructure investments. Private equity (PE) players have assumed importance in catalysing infrastructure development. Their journey in the domestic market has evolved from providing growth capital to making controlled investments. With the increase in size and business of PE firms, the scale of investments has also gone up. Those with deep pockets make investments with the motive of participating in the management of the business/ asset. Brownfield assets continue to be of significant interest. In addition, platforms such as infrastructure investment trusts (InvITs) and toll-operate-transfer (TOT) have increased the appetite for operational assets.
Investment trends
PE investments, including venture capital (VC) funding, reached new heights in 2018-19, with 54 deals worth Rs 817 billion signed across sectors such as transport infrastructure, oil and gas, telecommunications, power, renewables, logistics, and water and waste management. Despite the economic slowdown in 2019-20, PE/VC players such as Goldman Sachs, Sequoia Capital, Brookfield Asset Management, Cube Highways and Infrastructure and Macquarie, along with sovereign wealth funds (SWFs) and pension funds such as GIC (formerly known as Government of Singapore Investment Corporation), the Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec, and the Abu Dhabi Investment Authority (ADIA) continued to demonstrate appetite for new investments. PE investments in 2019-20 stood at around Rs 767 billion across 49 deals.
Overall, the momentum continued in 2020-21 as well, despite the economy being crippled by the Covid-19 pandemic. While activity was somewhat subdued in the first quarter, with Jio Platforms deals being the only exception, sentiment improved in the second quarter, as the economy started showing signs of recovery. During the April-November period of 2020-21, as many as 48 PE deals were struck garnering Rs 1.05 trillion in investments. PE activity during this period was dominated by investments in Jio Platforms, which constituted around 71 per cent of the total PE investments. A few asset acquisitions, which got delayed as a fallout of the pandemic, were completed in the second/third quarter. A noteworthy example of this is the tying up of funding by Cube Highways and Infrastructure for TOT Bundle III. Meanwhile, bids for the National Highways Authority of India’s (NHAI) TOT Bundle IV had to be delayed multiple times during the fiscal year, before the authority finally decided to withdraw the bundle and make changes to its TOT policy to revive investor interest.
Lucrative sectors
The road, power and renewable energy sectors continued to offer asset acquisition opportunities to PE players. Some of the key PE deals in the past 12-15 months include Global Infrastructure Partners acquiring 306 MW of solar assets of the RattanIndia Group, Cube Highways acquiring Chenani Nashri Tunnelway Limited, Qatar Investment Authority acquiring Adani Electricity Mumbai, and Orix Corporation acquiring a stake in Greenko Energy Holdings, among others.
Renewable energy and logistics companies, particularly technology-focused start-ups, continued to attract investments from PE and VC players. As per the PE deals tracked by India Infrastructure Research, since 2015-16, logistics and renewables have witnessed the maximum number of deals among the sectors tracked. In terms of value, however, the telecom sector saw the highest investment, followed by renewable energy and roads.
While most businesses are going through a bearish phase in the wake of the pandemic, the year 2020 has proved to be good for the Reliance Group. There has been strong institutional investor interest in Jio Platforms and Reliance’s fibre and tower assets. Brookfield Infrastructure Partners, along with the General Insurance Corporation of India and other investors, has recently completed the acquisition of Reliance Jio’s telecom tower assets, for a consideration of $3.4 billion, through the Tower Infrastructure Trust. Besides tower assets, warehouse and logistics parks make a strong case for monetisation through InvITs or real estate investment trusts. Investors are further eying opportunities in city gas distribution, smart mobility, data centres, etc.
Rising buyouts and platform investments
As businesses are maturing amidst a challenging global economy, the need for participation of experienced PE firms that have managerial and operating expertise is increasing. PE investors view the current economic slowdown as cyclical rather than structural in nature and hence are keen on investing in stable infrastructure assets. The holding period for these assets too has increased and PE funds look to exit after six to eight years rather than the previous three to five years.
InvITs are being considered as a lucrative investment vehicle for PE players, SWFs and pension funds. With income tax exemptions on investments by SWFs and pension funds in such trusts, private InvITs are seeing an influx of patient capital. In November 2020, ADIA and Saudi Arabia’s Public Investment Fund jointly invested $1.01 billion in the Digital Fibre Infrastructure Trust, which holds Reliance Industries’ optic fibre assets.
In the past 15-18 months, there have been a number of tie-ups between PE funds and developers to create funds/platforms for investing in infrastructure assets. The trend has been particularly prominent in the logistics and renewable energy space. Key examples of such tie-ups are Blackstone-Hiranandani Group (industrial warehousing), Blackstone-AllCargo Logistics (logistics parks) and Temasek-EQT (renewable energy). KKR’s recently launched Virescent Infrastructure, a platform to acquire renewable energy assets in India, and Welspun One, a platform focusing on warehousing investments, are other notable examples of logistics and renewable ventures.
Opportunities galore
The recent PE trends show that investors have a fairly positive outlook regarding the revival of the economy. Thus, PE activity is expected to remain strong in the fourth quarter of the ongoing fiscal year as well.
Power Grid Corporation of India Limited has received the government’s approval to monetise its assets and raise up to Rs 100 billion through the InvIT route. Besides, NHAI has also set the ball rolling for private placement of its upcoming InvIT. While TOT Bundle V is already out for bidding, more such bundles are set to be launched by the authority to monetise its operational highway assets. The National Infrastructure Pipeline will also offer a healthy set of operational assets in the long term. Thus, there are immense opportunities in the infrastructure space for PE investors in the times to come.