MUMBAI: The infrastructure sector, which saw acquisition and fund-raising deals in the last three months after a three-year lull, is poised for a flurry of deals that will revive stranded projects and help the sector bounce back in 2015. The sector — which has been struggling for years due to slowdown in government’s decision making, issues over land acquisition and environment, and poor financial health of private sector developers — is suddenly abuzz with activity. Last month, Reliance Power agreed to buy the hydroelectricity portfolio of Jaiprakash Group for about Rs 12,000 crore.
And over the past three months, companies such as Jaiprakash Associates, GMR Infrastructure and J Kumar Infrastructure have together raised Rs 5,000 crore through qualified institutional placement (QIP), or share sale to qualified institutional buyers (QIBs).
Experts and industry players expect infrastructure companies to raise Rs 8,000-10,000 crore more through QIPs, initial public offering (IPO) and other equity sale. They also believe more deals in the renewable energy, thermal power and road sectors are in the pipeline as highly leveraged companies have been looking to sell stake in projects.
Infrastructure companies ET spoke to recently said that though not much has changed on the ground, things are moving in the right direction under the Narendra Modi-led government.
“Recent policy announcements by the government and steps announced by the Reserve Bank of India have infused a lot of hope and comfort into the infrastructure sector that we can get back on the path of recovery,” said Virendra Mhaiskar, chairman and managing director at IRB Infrastructure Developers.
He said the RBI’s decision to exempt long-term bonds raised for infrastructure projects from the mandatory regulatory norms such as the cash reserve ratio, the statutory liquidity ratio and priority sector lending will go a long way in pumping fresh funds into the sector.
Suneet Maheshwari, group executive vice-president for corporate affairs at L&T Financial Services, said that infrastructure developers have been going through financial stress over the last two years and they were not able to make equity investments in their projects.
“Now with the capital market bouncing back, they will be able to raise money and contribute to the equity of projects that will enable banks to lend too,” he said. Several infrastructure companies indeed plan to tap the capital market. After successfully raising around Rs 1,500 crore via QIP, GMR Infra is reviving IPO plans for its arm GMR Energy.
Adani Group, one of the most indebted business groups in India, plans to raise Rs 10,000 crore through QIP of shares of Adani Enterprises, Adani Power and Adani Ports & Special Economic Zone to fuel the group’s growth.
Hindustan Construction Company (HCC), which is in corporate debt restructuring (CDR) due to accumulating losses and huge debt, now plans to raise Rs 750 crore through QIP and another Rs 750 crore via IPO of its arm Lavasa.
Ajit Gulabchand, chairman and managing director at HCC, recently told ET that his company will raise funds to pare debt and get out of CDR. “I want to make sure that we put our finances in order so that when Mr Modi and his government have reset the economy and relaunched India on anew growth path, we are fit to participate in the infrastructure growth,” he said. Gulabchand and other experts in the sector, however, agree that things have only started to change and it will take some time before everything falls in place. Khawar Iqbal, director for project and export finance at HSBC Securities and Capital Markets, India, said that for a complete revival of the infrastructure sector, some fundamental problems need to be resolved.
“A lot of key issues like coal availability and issues relating to land acquisition need to be resolved,” Iqbal said. “We may not be able to meet the $1 trillion investment target with the given slowdown in the first two years of the current five-year plan but there is more international capital which is ready to come,” he said. But there are several projects ready to take off soon.
National Highways Authority of India plans to award more cash contracts for building roads, in a deviation from its strategy of awarding projects under the PPP model, to boost activity.
Also, the government is working on supplying fuel for stranded power projects. Almost 19,000 mw of gas-based power plants and another 7,230 mw of coalbased projects are stranded or underutilised due to lack of fuel, which together is greater than the new capacity added by India ever in a year.
Maheshwari of L&T Financial Services expects infrastructure companies to start unwinding out of their financial stress over the next 9-12 months. “Things should start looking up for the sector by June-Sep 2015 after which, companies would take another 9-12 months to completely unwind out of the financial stress they have been in. Once that happens, recovery would start and capex cycle would resume,” he said.