After a lull period spanning the past few years with practically no appetite for Indian infrastructure, once again we see the beginning of international investor interest in the Indian infrastructure space.

Not only did the interest of off-shore investors in this space wane in the past few years, but the investments from the domestic private sector seemed to have also dried up with very few new investments. For domestic investors, the host of issues and obstacles from land acquisition to environment to the lacklustre capital markets were the main deterrents, while for international investors, the perceived risk-reward relationship was not in their favour and not worth the trouble in the Indian environment. Other than the fact that past experiences, which had seen some investments in the infra space go belly up, the foreign exchange volatility further aggravated the situation.

Some marquee international investments such as IDFC and Khazanah(the Malaysian sovereign wealth) entered into a JV to set up a dedicated infrastructure development company with a focus on the Indian road sector during early 2011. Significantinvestments were few and far between after 2011.

Another factor that went against India for Asian investors was the increasing promise of some of the other Asian economies appearing to make significant strides through various policy initiatives in the infra space. For example,Indonesia was the new darling of investors with a large potential pipeline of projects announced and a slew of measures on the financing side with the creation of the Indonesia Infrastructure Guarantee Fund (set up with support from the World Bank to provide government guarantees for infrastructure PPP projects in Indonesia) and the Indonesia Infrastructure Fund (sponsored by international heavyweights such as IFC, ADB, SMBC, DEG and SMI—a local Indonesian financing entity  to provide long-term IDR financing for infra projects). China continued to be a large market difficult for investors to ignore, while the Philippines (after the elections and an upbeat sentiment) and Thailand also seemed promising with an offer of hope for future infra investments. As a result of its own action (or inaction) and the alternative opportunities available, India fell of the investor radar.

Luckily, we see the trend shifting once again in India’s favour due to the same reasons that caused investorsto shy away from the country.India is seemingly getting its act in order, while the promise of other economies has not exactly been as expected. For example, the IDR has also seen huge volatility over the past few years and the pace of awarding or getting projects off the ground in Indonesia has been dismal. The Central Java Power Project, one of the largest power projects bid out on a PPP basis in Indonesia and one of the first projects to get government guarantee, had seen huge foreign investor interests with a Japanese consortium securing the project. However, it has seen a slew of issues from land acquisition, environment and human rights issues, local opposition and cost overruns, thus its progress has been little. Thailand has also been volatile with its political issues.In the Philippines, the infra bidding remains slow and the projects awarded are cornered by the large Filipino families that own everything from banks to airlines to infrastructure to real estate to casinos, leaving very little scope for foreign investment.

In the recent months there is increasing investor appetite for India and investments seem to be taking a slightly different hue. For example, private equity funds have dropped traditional investment styles (minority stake in infra holding companies and trying to manoeuvre their way with sometimes unscrupulous Indian promoters with significant leverage as well as padding up of costs and compromising on quality)and are increasingly looking at starting ground up on projects. This includescreating their own portfolios by hiring a professional team to manage investoraspirations of building world-class projects at the best cost and an optimal financing structure.

Two recent example of private equity fundsthat are successfully following this approach are Equis Funds Group and Actis. The Equis Funds Groups’ Energon is a developer and owner of clean energy infrastructure assets in India. Energon currently has 184MW of wind under construction, 54MW of which is operational; it is targeting to develop a further 300MW by 2016. This is a platform owned 100% by an equity fund. Actishas set up Ostro Energy, which is committingUSD230mn to create an Indian renewable energy platform and has built a strong team to lead the business.

Apart from private equity funds, we also have come across another class of investors in the recent past. Whereas traditionally these cash-rich foreign investors such as sovereign wealth funds and pension funds have looked at stable returns through investments in real estate in the US or Europe and infrastructure in stable economies such as Australia and Europe, we see the growing confidence of some large investors in Indian infrastructure. For instance, the Canada Pension Plan Investment Board (CPPIB) recently made an investment in India's infrastructure sector by entering into an agreement with L&T to initially invest approximately USD166mn in L&T’s subsidiary L&T Infrastructure Development Projects Limited (L&T IDPL). L&T IDPL owns one of the largest toll-road concession portfolios in India as well as a power transmission line project, and a metro project in Hyderabad.

In what would be the first instance of a foreign strategic buyer for an Indian wind asset, Singapore's Sembcorp Utilities, which is a wholly-owned subsidiary of Sembcorp Industries, has recently agreed to pick up a controlling stake in Green Infra, a wind generation firm controlled by IDFC's PE arm.

We hope that this interest can be sustained with actual positives on the ground changes to facilitate these investments.


Preeti Yardi

Preeti Yardi is the Chief Executive Officer-IGFSL,Pte. Singapore. IGFSL,Pte is a 100% subsidiary of IL&FS Financial Services Ltd.


Opinions expressed by the Contributors are their own and do not reflect any opinion of IL&FS Financial Services on the said subject

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