Infrastructure Finance Update, February 2021
The Union Budget 2021-22, presented on 1st February, focused majorly on infrastructure sector to increase economic growth rates by initiating several new projects and announcing the setting up of a Development Finance Institution for long term financing needs of the sector. As part of the Union Budget presentation, Finance Minister Nirmala Sitharaman said that India will set up a new Development Finance Institution called the National Bank for Financing Infrastructure and Development. The institution will be set up on a capital base of Rs 20,000 crore and will have a lending target of Rs 5 lakh crore in three years.
It has also been reported that India Infrastructure Finance Company Limited (IIFCL) may get subsumed into the new Development Finance Institution to accelerate infrastructure financing activities. The proposed DFI would come under the regulatory supervision of the Reserve Bank of India and gradually the government stake in the company would be brought down to 26 per cent.
Under the roads and highway projects, in order to speed up the execution of flagship highways corridors as well as projects, FM provided an enhanced outlay of Rs 1.18 lakh crore for the Ministry of Road Transport and Highways for 2021-22. An allocation of Rs 91,823 crore was made to highways for 2020-21, which was revised to Rs 1.01 lakh crore.
It has also been reported that the Infrastructure Investment Trust (InvIT) by the National Highways Authority of India (NHAI), which is expected to enter the market by the end of this fiscal year, is likely to undergo changes to suit the prospective bidders better. The road stretches in the urban areas, which were part of the earlier InvIT offering, have been removed in the proposal and replaced with the roads in rural areas. One reasoning behind this proposal is that it may attract toll and other revenues, while urban areas generate revenues on their own and therefore may not require funding via the InvIT. The Union government is awaiting approval from the market regulator Securities and Exchange Board of India (Sebi).
The InvIT mechanism is being brought in to generate funds from foreign and domestic institutional investors. Five operational roads have been identified to be transferred to InvIT. The road transport ministry said that placement memorandum is under progress, and the issue may take place in March 2021 to raise expected funds to the tune of Rs 5,000 crore. Overall, the NHAI has identified around 19 projects worth Rs 35,000 crore for fundraising under this route.
The National Company Law Tribunal (NCLT) has given approval to the settlement of Rs 707.70 crore claim made by Fagne Sonagarh Expressway (FSEL), a special purpose vehicle of IL&FS for the expressway project, from National Highways Authority of India (NHAI). The tribunal, has allowed FSEL to receive the settlement amount of Rs 707.709 crore (subject to any deduction of tax as applicable and any further withholding of an amount of Rs 16.93 crores towards royalty payment). NHAI will pay the settlement amount under the approved guidelines for resolution of road projects that have been stuck for various reasons.
Highways developer IRB Infrastructure Developers Ltd (IRB) has announced that it has entered into a definitive agreement with India Toll Roads – Foreign Portfolio Investor, for raising of funds by issuance of non-convertible debentures up to ₹2,220 crore subject to the satisfactory completion of procedural conditions. The proceeds would be utilized for repayment of existing loans up to ₹1,600 crore and balance for meeting Capex requirements and general corporate purposes.
In order to deal with any lapses in construction standards of bridges/ structures/approaches, etc. by the Concessionaires/ Contractors / Consultants in highway development, National Highways Authority of India (NHAI) has issued a strict policy of imposing penalty up to Rs 10 crore for defaulters besides debarment of the firm or personnel for up to three years. The move is aimed at maintaining high-quality standards in highway development. Graded penal action will be taken against the defaulters in cases of minor lapses, major incidents and major failures resulting in loss of human lives.
The National Highways Authority of India (NHAI) has also said that it has decided to remove the requirement of maintaining a minimum amount in FASTag wallet/account which was paid by the user in addition to the security deposit for the passenger segment (Car/Jeep/Van). The move aims at ensuring seamless movement of traffic and to reduce avoidable delays at electronic toll plazas. It said issuer banks were unilaterally mandating some threshold amount value for the FASTag account/wallet, in addition to the security deposit amount.
In the ports and coastal infrastructure projects, Adani Ports and Special Economic Zone Ltd. completed the acquisition of 100% stake of Dighi Port Limited (DPL) for ₹705 crore in Mahrashtra and also made a commitment to invest ₹10,000 crore to develop it into an alternative gateway to Jawaharlal Nehru Port Trust in Mumbai. With this, Dighi Port becomes the 12th port asset to join Adani group’s growing list of ports in the country. The Adani group said in a statement stated that it plans to invest more than ₹10,000 crore to develop the port into a multi-cargo port with ‘world-class’ infrastructure as well as to invest in the development of rail and road evacuation infrastructure for seamless and efficient cargo movement.
The Parliament of India has also passed a bill to provide greater autonomy to the major ports. The bill seeks to provide autonomy to these ports and boost their decision-making powers in order to compete with private ports.
Adani Group has also completed the purchase of 23.5 per cent stake in Mumbai International Airport (MIAL) from two South African entities, marking the first step towards acquiring a majority control in the country’s second-busiest airport. The deal marks a culmination of Adani Group’s two-year quest to acquire a stake and gain control of the Mumbai airport and the exit of foreign investors from the airport. The group has already taken over six Airport Authority of India (AAI) airports under the privatisation exercise. This includes Ahmedabad, Lucknow, Mangaluru, Jaipur, Thiruvananthapuram, and Guwahati. Last August, it had signed an agreement with GVK Group to acquire its 50.5 per cent stake in Mumbai airport. The deal also included acquisition of 23.5 per cent stake held by the two South African companies. As a part of the deal, Adani Group will take over Rs 2,500 crore of debt owed by GVK Airport Developers, the holding company of MIAL. Adani will get controlling stake in MIAL upon conversion of the debt into equity.
In another significant move to augment funds for the infrastructure and real estate sectors, the government proposed permitting foreign portfolio investors an entry into debt financing of emerging investment vehicles – REITs and InvITs. In the budget presentation, FM also proposed exempt taxes on dividends on REITs and InvITs, which will make such investment vehicles attractive and lucrative for investors.
Under the real estate sector, mortgage lender Indiabulls Housing Finance is looking to raise Rs 5,000 crore through the securitisation route in the fourth quarter of the current financial year. In the three months ended December 31, 2020, it had raised around Rs 2,000 crore through the route. Securitisation constitutes 25 percent of the non-bank financier’s overall borrowing and on an average, it raises around Rs 2,500 crore per quarter through the route. Overall, in 2020-21, it has raised a total of Rs 28,119 crore through equity, bank lines, bonds and loan sell-downs.
A clutch of investors, including mutual funds such as HDFC Mutual Fund, Kotak Mutual Fund and life insurance firms such as SBI Life, Tata AIG General Insurance Company and others, have put Rs 1,709 crore in the initial public issue of Brookfield India Real Estate Trust sponsored by Canadian investor Brookfield.
The Hiranandani Group will invest around Rs 8,500 crore to develop industrial and data centre parks in West Bengal. It has signed an MoU (memorandum of understanding) to acquire a 100-acre land at Uttarpara, Kolkata to set up an integrated logistics and hyperscale data center park by group companies GreenBase and Yotta respectively. The combined investment by the group and their customers is estimated to cross Rs 10,000 crore.
Real estate major DLF Group’s rental arm DLF Cyber City Developers Ltd (DCCDL) has acquired 51.8 per cent stake in Fairleaf Real Estate Pvt Ltd for ₹ 780 crore. In December last year, DCCDL had entered into a securities purchase agreement with funds managed by Hines, a global real estate investment, development and management firm, to acquire stake in Fairleaf.
Realty firm, SOBHA has reported best-ever quarterly residential sales volume of 1.13 million square feet valued at Rs 888 crore with an average price realization of Rs.7, 830 per square feet for the quarter ended December. Sales volume, total sales value and Sobha share of sales value during Q3-21 were up by 27%, 29%, and 28% respectively as compared to Q2-21. Property sales value and Sobha share of sales value during Q3-21 were up by 6%, 22%, and 12% respectively as compared to Q3-20, an indication that worst is over and are surpassing pre-Covid level of operational performance.
Mortgage lender Indiabulls Housing Finance reported a 40.4 per cent dip in its consolidated profit after tax to Rs 329 crore in the December 2020 quarter, due to higher provisioning. The lender had registered a profit after tax of Rs 552 crore in the corresponding quarter of the previous fiscal. The lender made a net provisioning of Rs 140 crore and did accelerated write-offs worth Rs 250 crore during the third quarter of this fiscal.
Mumbai-based Lodha Developers has filed a draft red herring prospectus (DHRP) to raise Rs 2,500 crore through an initial public offering (IPO) with the Securities Exchange Board of India (SEBI). The macrotech developer plans to use around Rs 1,500 crore from the net proceeds to repay debt and Rs 375 crore for buying land. The consolidated debt of the company was at Rs 18,662.19 crore as of December 2020.
Kotak Investment Advisors has raised $380 million or Rs 2,770 crore from world monetary buyers through its new actual property fund. The fund is likely one of the largest devoted actual property financing funds closed in latest occasions in India, significantly throughout the Covid-19 pandemic. The new fund will goal a variety of actual property financing alternatives primarily through debt funding throughout key cities in India. It will make investments throughout each early stage and late-stage actual property initiatives in residential, business, retail, warehousing and hospitality sectors.
On the private equity front, Blackstone Group is set to acquire Embassy Industrial Parks for Rs 5,250 crore ($700 million) from Warburg Pincus and the Embassy Group. The transaction between Blackstone, Warburg Pincus and Embassy Group has been finalized with all the key contours and the deal will make Blackstone the biggest warehousing landlord and retail asset owner in India. It would also be India’s first large private equity (PE) transaction of 2021 and the largest ever logistics and warehousing deal in the country.
New Development Bank has committed to invest USD 100 million (around Rs 728 crore) in NIIF Fund of Funds (FoF). With NDB”s investment, the FoF has secured USD 800 million in commitments. NDB joins the Government of India (GoI), Asian Infrastructure Investment Bank (AIIB) and Asian Development Bank (ADB) as an investor in the FoF.
Edelweiss Wealth Management is targeting to raise Rs 1,000 crore in the Edelweiss Dynamic Growth Equity (EDGE) Fund from domestic investors. Over the next few months, it plans to go overseas for widening its asset under management pool through the alternate investment fund (AIF). The fundraising, which comes amid a strong rally in the markets that has led to concerns overvaluation, will take about 6-9 months, and the company will target high-networth individuals (HNIs), family offices and institutional investors for investment commitments. It may go to foreign investors as well once it has raised up to Rs 3,000 crore. Currently, the company has Rs 1.70 lakh crore of assets under advice on an overall basis.
Infra Market has joined the unicorn club after raising $100 million in a Series C round. This round was led by Tiger Global, with participation from other existing investors Accel Partners, Nexus Venture Partners, Evolvence India Fund, Sistema Asia Fund and Foundamental Gmbh. The company had raised a seed round from Accel in June 2019, and has achieved the unicorn status in less than 20 months. Following the $100-million round, the company has raised $150 million so far. The company, which has been profitable for the past four years, currently has gross merchandise value (GMV) of $400 million, and is targeting a GMV of $1 billion this year.
A day after the Union Budget proposed a substantial capital expenditure push, foreign investors swarmed over a green bond offering from India, indicating a ready stream of money for financing roads, ports, and other infrastructure in the country. Continuum Wind Energy’s bond offering of $560 million, with an average tenure of 5.1 years, received $3.2 billion pre-order bids from investors as soon as the issue opened in the US markets. While the initial price guidance was 4.875 per cent, the issue was priced at 4.5 per cent, given the investor interest. The issue was closed the same day it was opened because of the response. Bankers say the pipeline for green bonds is robust this year as there is a huge amount of global liquidity chasing too few investable options. However, demand for high yield bonds from other sectors have thinned in the international market after the Covid-19 pandemic, bankers say. Sectors such as hospitality and airlines have suffered the most during the pandemic and they will struggle to raise funds globally. Infrastructure bonds will fill the vacuum if they promise to stick to the environmental, social, and corporate governance (ESG) agenda.
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