Deal Dynamics: Investor perspective, financing trends and emerging opportunities

Investor appetite for infrastructure financing in India has steadily improved over the ye­ars, with a greater number of investors looking to invest in long-term proje­c­ts. This has re­sul­ted in a huge influx of funds and has helped bring more investments into the sector. The government has traditionally be­en the country’s principal backer of infrastructure projects. Of late, there has been a significant shift in the general perspective, and the current belief is that this may not be the optimal strategy for financing large-scale projects. As a result, private sector participation has picked up steam in the past few years.

Infrastructure financing in India has faced many obstacles, including uncertainty over hol­ding assets till maturity versus selling them. However, due to the government’s persistent efforts to segregate the risk issues of assets, post 2013-14, the market has finally evolved to the point where an asset’s long-term holder and its developer can be easily determined.

At any rate, the sector has reached a stage of maturity where tremendous opportunities exist for the investment community. In light of the ongoing infrastructure projects, there app­ears to be significant potential for various fund houses and investors to acquire assets in the Indian market. Additionally, the current market upswing is correlated with India’s resili­e­nt economy, which has endured the Covid-19 pandemic.

Sectoral trends

Urbanisation is an ongoing worldwide trend that encourages the growth of transport sectors such as roads and highways, and airports. As a result, India is seeing an unprecedented need for infrastructure development and the urban transport industry has experienced a surge in activity. It is anticipated that the roads and highways sector will continue to be a focal point for investment in the foreseeable future, given its importance and role in a growing economy. Fur­thermore, the sector’s mature concession ag­ree­ments are also stimulating interest.

Recently, the advent of financial investor-led platforms has been a significant trend. This stemmed from the commonly faced hurdle of misalignment of vision for an infrastructure as­set, encountered by many investor-developer joint ventures (JVs). This also indicates a clear trend for the foreseeable future, whereby financial investor-led platforms can aggregate ass­e­ts and hold them for extended periods. In recent years, investors have also realised the significance of asset management as opposed to only pursuing mergers and acquisitions (M&As). CPP Investments, for instance, has de­vo­ted 60 per cent of its effort towards its IDPL-sponsored infrastructure investment trust (InvIT), IndInfravit Trust. As a result of these re­lentless efforts, the InvIT is now a self-sufficient entity that can fully manage its assets.

Additionally, from a global vantage point, the returns landscape is changing. Short-term yields are now being considered alongside ov­er­all returns when evaluating investments. This has been prevalent in the technology industry, where valuations have melted down.

Opportunity space

In the road space, a great deal of balance sh­eet-friendly acquisition opportunities exist. Coal mine developer and operator is another op­e­rational area-oriented investment role, where the developer or investor does not assu­me the commodity risk of coal.

In India, technology has been widely em­bra­ced. This has created investment opportunities in digital infrastructures such as data centres, telecom towers and fibre. Energy transition, which emphasises cleaner and more sustainable kinds of energy, is another emerging field. Renewable energy has surpassed conventional energy in terms of cost-effectiveness and investor interest. In the coming years, battery storage, thermal energy and electric vehicles (EVs) are also anticipated to play significant roles within the sector. In a similar development, the Macquarie Group is currently in the process of establishing an e-mobility finan­cing-focused platform in India.

In sectors such as water and waste, sew­a­ge treatment, and desalination facilities, where the evolution of contracts and concessions has been weak, substantial investment is necessary. Many industrial estates in India are ad­mi­nistered by state governments or industrial de­ve­lopment corporations. The condition of these estates, particularly the road and sew­age network and the common effluent treat­ment plan­ts, is below standards. These conditions directly impact the production of these micro, small and medium industries. Hence, an opportunity lies in the space for a developer to develop, re­develop and upgrade these estates.


The availability of private funding for greenfield assets has been one of the most formidable obstacles. It has been absent from the construction of infrastructure assets in recent years, resulting in fewer operational assets in the market.

Diversification of portfolios is favoured on a global scale, yet it is uncommon in India. Th­ere is a need to move beyond roads and renewables, and prioritise all sectors equally. The National Monetisation Pipeline has been a bright spot; however, barring the roads and transmission sectors, no space has taken off in the pipeline, as these sectors have mature concession agreements and assets in SPVs.

At a macro level, the biggest obstacle is the unavailability of a concession agreement that of­fers a mechanism for resolving disputes, and separates the risk and reward mechanisms. The most critical challenge is getting approval from the project sponsor or the authority. Constant delays can make these deals difficult, as sometimes force majeure events cannot be predicted or dealt with, as seen during the pandemic. Hen­ce, timely regulatory approvals are essential.

Obtaining approval from a project’s sponsor or the relevant authority for a share purchase agreement between a buyer and a seller is also crucial. However, constant delays in ob­taining regulatory approvals for these time-sensitive agreements pose another challenge.

Blended support

India offers a flourishing and rising investment climate for both foreign and domestic inves­tors. Compared to domestic investors, foreign investors and global funds have been more bullish towards India. Hence, the foreign inves­tor spotlight currently shining on India is in­deed merited. Despite hindrances such as the Covid-19 pandemic and rising inflation, long-term investors continue to bet big on India’s infrastructure sector. Worldwide players such as Macquarie, ISquared Capital and CPP In­ve­st­ments are keen on capitalising on India’s fast growing economy, whose returns are derived through equity rather than debt. For instance, CPP Investments has infused a total of Rs 1.25 trillion (about CAD 20 billion) in In­dia, across various sectors.

On the other hand, the availability of domestic capital is scarce. For a long time now, domestic capital has been fixated on bonds and debt. Large domestic institutions are particularly apprehensive about making investments in Indian infrastructure equity. Traditio­nally, do­m­es­tic investors have been uncertain as to whe­ther they should play the role of a pure-play investor or a developer. This uncertainty has further persisted when determining the type of risk they are willing to assume – greenfield or brownfield – and whether they want a JV or a solo asset. Hence, a strategic line of thought is of utmost importance in the sector. w

Based on a panel discussion between Abhimanyu Diwan, Vice President, Macquarie Group; Pushkar Kulkarni, Managing Director, Infrastructure & Sustainable Energies, CPP Investments; Gaurav Malhotra, CFO and Head – HAM M&A, Cube Highways; T.R. Rao, Whole-Time Director, PNC Infratech Limited; and Praveen Sethia, Founder & Director, Infrastructure Advisors Private Limited, at a recent India Infrastructure conference