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‘M&A in infra sector to pick up pace with new players, novel financing models’

V Rishi Kumar Hyderabad | Updated on March 07, 2021

Deepto Roy, Partner, Shardul Amarchand Mangaldas & Co

Infrastructure sector is poised to see further acceleration with the Government planning monetisation of some of the completed PPP projects to redeploy the funds for new ones.

The Government has massive plans for monetisation of PPP projects and government infrastructure assets, which will see further boost in M&A activities, according to Deepto Roy, Partner, Shardul Amarchand Mangaldas & Co.

In an exclusive interaction with BusinessLine, Roy said, “The largescale distribution reforms in the electricity sector should also improve the financials of the generating companies, which may lead to more deal certainty and better valuations.”

He said, “Whereas, the infrastructure sector was mostly dominated by Indian promoter driven companies in the early 2000s, we now see a range of investors, including international strategics, asset management funds such KKR, Macquaire, Brookfield, Actis and Isquare Capital; as well as a range of long term institutional funds, including pension funds (CPPIB, CDPQ, Omers); insurance funds (Allianz Capital); and sovereign wealth funds such as ADIA and Masdar.

He said, “Since a lot of international fund raising is now linked to Environmental Sustainability Goal norms, we expect more investments in the renewable energy sector.”

‘Critical mass’

“Increased M&A activity has been that in several sectors such as roads and renewable energy there is now a critical mass of constructed, revenue earning projects. Since many investors are not keen on taking constructions risks,” he explained.

The infrastructure sector is also seeing a number of stressed related deals, either through the Indian Bankruptcy Code (IBC) or other forms of lender driven restructurings. However, challenges continue to remain such as land and environmental issues, large unresolved claims against Government entities, regulatory uncertainties and Governmental capriciousness as in renegotiation of the power tariff issues in Andhra Pradesh and weak financial status of Indian selling promoters with no back-up for financial indemnities.

InviT

He said, “Further impetus has been given by the success of the Infrastructure Investment Trust (InviT) model, which provides a favourable tax treatment as well as a better exit route to investors. Most platform level deals now involve at least a discussion on InviTs. Even Government entities have jumped on to the bandwagon, with both PGCIL and NHAI having Invit issuances planned.”

Published on March 07, 2021

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