Over the years, India has maintained a rapid pace of economic growth primarily due to the continued focus on infrastructure development. This has resulted in job creation, a higher standard of living, better connectivity and strategies for a sustainable future. Despite facing challenges such as a nationwide lockdown owing to Covid-19, geopolitical constraints and supply disruptions, among other macroeconomic headwinds, India has remained committed to infrastructure asset creation by leveraging various sources of long-term credit.
Trends in government spending
Past union budgets have demonstrated a strong commitment to augmenting investments in the infrastructure sector. The interim budget 2024-25 reinforces this commitment by raising the capital spending by 11 per cent to Rs 11.11 trillion or 3.4 per cent of GDP.
Traditionally, government support has been the primary financial aid for infrastructure projects in India across sectors such as water, solid waste management and railways. However, the road, energy, airport, port, logistics, telecom and metro sectors have benefitted significantly from the availability of various financing avenues and multilateral funding.
Key infrastructure sectors that witnessed an uptick in fundraising in the past year are…
Roads
In recent years, the sector has been progressively transitioning from a constrained fiscal environment to a more flexible one. Alternative sources of funding, including private equity (PE), foreign direct investment, infrastructure investment trusts (InvITs) and asset monetisatiown via different routes, account for a large share in the overall investment in road infrastructure.
The National Highways Authority of India (NHAI) has been encouraging insurance companies and contractors to opt for insurance surety bonds when submitting bid and performance security deposits for projects. Recently, it accepted the first insurance surety bond for the Toll-Operate-Transfer (TOT) Bundle 14 monetisation bid. Further, during 2023, NHAI raised the highest ever monetisation value of Rs 156.24 billion via InvIT Round 3, as against its target of Rs 100 billion.
In a recent move, KKR-backed Highways Infrastructure Trust acquired 12 road assets from PNC Infratech and PNC Infra Holdings for Rs 90.05 billion, marking the biggest acquisition in the sector. Overall, strong investor appetite for operational assets is driving road asset sales.
Airports
The aviation industry has been on a high-growth trajectory, with bank lending showing a positive trend. As of September 2023, India Infrastructure Finance Company Limited has sanctioned loans amounting to Rs 88 billion to support the country’s aviation sector.
The GMR Group, in particular, has been actively raising funds for its airports. In November 2023, GGIAL raised Rs 24.75 billion with the issuance of non-convertible debentures to repay existing debt and fund capex. Further, in January 2024, GMR Airports Limited raised a Rs 8 billion debt facility. The Adani Group, another key player, is in talks with overseas sovereign funds to raise over Rs 210 billion for its airport expansion and green hydrogen projects.
In addition, as part of its diversification strategy and to secure funding for infrastructure projects, the Power Finance Corporation sanctioned its maiden financing for a greenfield airport project in Andhra Pradesh in October 2023.
Ports
Budgetary support, bank credit, external commercial borrowings and equity investments via foreign portfolio investment have been the key sources of funding for the sector. PE-routed investments in the sector have completely dried up. However, in a recent trend, acquisition activity has picked up. During 2023, four asset sales worth over Rs 20 billion were recorded.
Under Maritime Vision 2030, a Maritime Development Fund is being set up with an estimated capital of Rs 250 billion (including Rs 25 billion as support from the government over seven years). Multiple funding mechanisms such as debt, equity, viability gap funding and buyer credit support will be a part of the fund mandate.
Water and waste
Sanctions and government grants have been the key funding sources for water pipelines, sewage treatment plants (STPs) and effluent treatment plants in India. Multiple water supply projects are currently under way, supported by a rise in state government financing. For instance, in November 2023, the centre sanctioned funds worth Rs 1 billion for the development of the Tura Bulk Water Supply Scheme in Meghalaya. Prior to this, the Maharashtra government had approved funds worth Rs 470 million for the construction of six STPs and the Odisha government had allocated funds worth Rs 132.15 billion for providing piped drinking water in rural areas.
During the year, in a first, Vishnu Prakash and EMS Limited, formerly known as EMS Infracon Private Limited, tapped the public route via initial public offering (IPO) issuances.
Energy
In order to finance the rapid expansion of solar, wind, green hydrogen and power projects during 2023, energy companies actively leveraged public markets through IPOs, QIPs, InvITs and overseas bond issuances.
During the year, Indian Renewable Energy Development Agency Limited and Oriana Power Limited issued their IPOs. Sterling and Wilson Renewable Energy Limited, Suzlon Energy, IndiGrid and KPI Green Energy went through multiple rounds of debt restructuring and QIPs. Inox Wind Energy Limited concluded a successful fundraising of Rs 8 billion through an equity share sale of its subsidiary, Inox Wind Limited. Further, SJVN Limited secured a Rs 100 billion construction finance facility to fund its upcoming renewable energy projects from a group of leading domestic and international lenders. Furthermore, Waaree Energies Limited Vikram Solar Limited and Alpex Solar Limited filed for IPOs.
Most recently, the Asian Infrastructure Investment Bank invested around $58.40 million in Sustainable Energy Infra Trust, India’s largest renewable energy InvIT. Prior to this, in September 2023, the Power Grid Corporation of India board approved a proposal to raise Rs 22.50 billion via bonds to support its capex in 2023-24.
The trend of capital raising in the Indian renewable energy sector, particularly through public offerings, reflects the industry’s dynamism and growth potential. The fundraising outlook for renewable energy companies in 2024 remains robust, driven by several key factors such as the ambitious renewable energy target of 500 GW by 2030, necessitating an investment of nearly $300 billion according to the National Electricity Plan.
In sum
India currently lacks the depth of a well-established market to actively pursue alternative financing mechanisms, but exhibits strong growth potential. Overcoming current market challenges, and creating a well-regulated and accessible market for bonds, IPOs, QIPs, equity, etc. is critical. Moreover, active participation from each sector is required to tap different avenues for long-term credit. In addition, the intermittent global recessionary patterns make it crucial for India to prioritise infrastructure creation by utilising various available funding mechanisms.
Harman Mangat