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Infrastructure Finance Update, January 2021

The Infrastructure Sector remained a key focus area of the Economic Survey 2020-2021, which was presented on January 29, 2021 prior to the Union Budget 2021-22. The Economic Survey 2020-21 highlighted the key areas related to infrastructure sector including construction of Highways, which it said will regain fast-pace of the pre-COVID level, on the back of multiple initiatives and unlocking of the economy. In the current financial year, the COVID-19 shock resulted in the decline of road construction to 22 km a day from the level of 30 km a day in FY2019. The Economic Survey noted that the total investments in the Roads and Highway sector has gone up more than three times in the last six years – from Rs 51,935 crore in FY2015 to Rs 1,72,767 crore in FY2020, which also led to increased road density across the states.

National Highways Authority of India (NHAI) plans to raise at least Rs 10,000 crore this calendar year by monetising its assets. It plans to monetise about 1,200km of roads in the country. The first part will be through an InVIT (Infrastructure Investment Trust) covering about 600km and the second part will be 3-4 bundles under the Toll-Operate-Transfer (TOT) route of about 150km each. NHAI will make these bundles smaller than what was in the previous rounds in order to suit the investors.

For the NHAI, successful sales of tolling rights on highway assets will be the key towards funding its ambitious Bharatmala Pariyojana programme, part of the National Infrastructure Pipeline (NIP), which has pushed the state-run agency deep into debt. The borrowings are expected to surpass Rs 3.5 trillion by FY2023 to fund the Bharatmala Pariyojna programme.

In addition, according to rating agency ICRA, there is a need to increase capital outlay in the road sector by at least 15 per cent besides expediting asset monetisation programme.  The Economic Survey also said that the hybrid annuity mode of building highways presents huge refinancing opportunities and 70 such projects involving Rs 35,800 crore of debt are expected to become operational in the next two years. Project awards also saw a massive jump of 111 per cent to 6,764 km in FY2021 from 3,211 km in FY2020, given the thrust laid on Bharatmala Pariyojana and that the awarding process of projects under Bharatmala is likely to get completed by FY2023 and execution by FY2026.

It was also expected that in Budget 2021, there will be special window for strategically important investors such as Sovereign Wealth Funds (SWFs) and Pension Funds (PFs) that wish to invest over Rs 3,000 crore through a single transaction. The government was expected to infuse Rs 5,000 crore into India Infrastructure Finance Company Ltd in the upcoming Budget to boost investment in the infrastructure sector and accelerate revival of the COVID-19 hit economy. As per the Budget document, the government had earmarked Rs 10,000 crore as capital support to IIFCL for 2020-21. Subsequently, the government approved increasing the authorised capital of IIFCL from Rs 6,000 crore to Rs 25,000 crore to create requisite headroom for borrowing thus enabling the company to finance big-ticket infrastructure projects in line with the government’s target. The sources said the exact quantum will be decided based on various considerations, including setting up of Development Finance Institution.

Looking at investments in private equity sector last month, KKR & Co. raised US$3.9 billion for its first Asia-Pacific infrastructure fund, amassing the largest pool of cash in the region for investments in everything from waste management and renewable energy to communication towers. In the process of raising funds, the firm boosted its initial target from US$3 billion and stopped fundraising after reaching its cap. It tapped three dozen investors in the U.S., Europe, the Middle East and Asia-Pacific, said Alisa Amarosa Wood, head of KKR’s Private Markets Products Group. KKR and its employees contributed about US$300 million. Accelerating its expansion across a region that’s emerging from the pandemic and bolstered by a growing middle class, the firm is also in the midst of raising at least US$12.5 billion in a fourth private equity fund and planning its first real estate and credit funds in Asia.

On the other hand, Tata Capital has also announced that it has raised Rs 1,250 crore for a private equity fund which will be investing in areas including urbanisation and manufacturing. The fund has both newer and existing investors, which include global and European fund of funds, Japanese institutions and a leading Asian development finance institution.

The National Investment and Infrastructure Fund (NIIF) in its five years of existence has made an equity investment of less than Rs 5,000 crore in infrastructure projects. The Rs 40,000-crore NIIF was set up in December 2015 as an institution for enhancing infrastructure financing by investing in greenfield (new), brownfield (existing) and stalled projects. NIIF has made an equity investment of Rs 4,689 crore, while the co-investment by its partners stood at Rs 7,053 crore at the end of September 2020. The quasi-sovereign wealth fund’s total equity investment along with partners stood at Rs 11,742 crore as of September 2020.

Adani Enterprises Limited (AEL) has won a Rs 1,838-crore highway project from the National Highways Authority of India (NHAI) in Kerala. The project granted under the Hybrid Annuity Mode (HAM) is part of the Bharatmala Pariyojna of the Centre. The 40-km road project pertains to six-laning of Azhiyur to Vengalam section of NH-17 (New NH-66) in Kerala, said the company. With this project award, Adani Group has a total of six NHAI road projects under HAM in Chhattisgarh, Telangana, Andhra Pradesh, Madhya Pradesh and Kerala.

Adani Ports along with Special Economic Zone said it has raised US$ 500 million by selling 10-year bonds to international investors at a coupon of 3.10 per cent. The company said the senior unsecured US dollar note was oversubscribed six times by marquee international investors, helping it fix the coupon at a low 3.10 per cent. Last July, it had paid 4.2 per cent for a similar issue of US$ 750 million. This is the third large bond sale by domestic issuers after Exim Bank’s US$ 1 billion issue at record low prices in the first week of the month, followed by State Bank of India in the second week with a US$ 6million bond sale and the third dollar debt issuance by Adani Ports this fiscal—US$ 750 million in July 2020 and USD 300 million in December, totalling USD 1.55 billion.

Infrastructure firm Larsen & Toubro (L&T) announced that it has received an up to Rs 2,500 crore contract for the upcoming and country’s first high speed rail corridor project connecting the financial capital and the city of Ahmedabad. It said that a significant contract has been secured by the heavy civil infrastructure business of L&T Construction from two packages of the Mumbai-Ahmedabad High Speed Rail Corridor. This high speed rail corridor project is being implemented by National High Speed Rail Corporation Limited (NHSRCL), based on Japanese E5 Shinkansen technology. It further said the Rs 2,500 crore contracts were secured through a consortium of L&T and Japan’s IHI Infrastructure Systems (IIS).

Reliance Infrastructure Limited announced the completion of the sale of its Delhi – Agra (DA) toll road to Cube Highways and Infrastructure Pte Limited for an amount of Rs 3,600 crore. Singapore-based Cube Highways and Infrastructure III Pte Limited Company are formed by Global Infrastructure Fund I Squared Capital and is Abu Dhabi Investment Authority’s wholly-owned subsidiary.

Jain Housing has raised funds of Rs 175 crore from Nippon Life Asset Management Ltd and Apollo Global Management for about Rs 175 crore in two tranches. The funds would be utilised to reduce the city-based company’s existing debts. The company in the past managed to receive Rs 5,150 crore from various financial institutions including GIC sovereign wealth fund – Singapore, Xander Finance.

Private Equity – Venture Capital (PE-VC) firms grew by 6.6 per cent in 2020 to US$39.2 billion (across 814 deals) from US$36.3 billion (1,012 deals) in 2019. The increase was largely due to Reliance Industries Limited(RIL) deals, which helped to create three continuous years of record-high PE investments in the country. These figures include Venture Capital investments, but exclude PE investments in real estate. According to Venture Intelligence data, the deals include the US$17.3 billion invested by US-headquartered private equity and other global sovereign wealth funds in RIL Group firms including Jio Platforms (US$9.9 Billion), Reliance Retail (US$6.4 Billion), and Reliance Digital Fibre Infrastructure Trust (US$1 Billion) – accounted for 44% of the total PE-VC investment value in 2020. Besides, Jio platforms received US$10.2 billion as strategic investments from Google and Facebook.

Infrastructure developer DilipBuildconhas incorporated a special purpose vehicle (SPV) for road project worth Rs 882 crore in Gujarat. It incorporated a SPV for a new HAM (hybrid annuity mode) project named as DhrolBhadra Highways as a wholly-owned subsidiary of DilipBuildcon. The product is for four laning of Dhrol-BhadraPatiya section of NH-151A and BhadraPatiya-Pipaliya Section of NH151A in Gujarat through public private partnership on design, build, operate and transfer (the DBOT annuity or hybrid annuity) basis.

MotilalOswal Real Estate (MORE), the realty-focussed private equity arm of MotilalOswal Financial Services Ltd, plans to raise Rs 800 crore fifth funds, India Realty Excellence Fund V (IREF V).The three earlier funds focused on early-stage real estate deals, while IREF V will offer construction finance to projects that have received all approvals. The new fund will deploy capital in mid-income or affordable residential projects across Mumbai, Delhi-NCR, Pune, Bengaluru, Chennai, Hyderabad, and Ahmedabad.

Aadhar Housing Finance Ltd, backed by private equity firm Blackstone Group Inc, has filed for an initial public offering of up to Rs 73 billion (US$999.68 million).The offering will comprise a fresh issue of shares worth up to Rs 15 billion by the housing financier and shares worth up to Rs 58 billion by BCP Topco VII Pte Ltd, an entity managed by Blackstone that owns 98.72% in the company.

Morgan Stanley India Infrastructure has invested Rs 180 crore to acquire stake in LEAP India. LEAP India is an asset pooling company dedicated to providing dependable and cost-effective solutions to supply chains across India.

The Gujarat government and Adani Ports and Special Economic Zone (APSEZ) signed a memorandum of understanding (MoU) for setting up a nearly 1,500-acre multi-modal logistics park near the auto hub of Sanand.Spread across 1,450 acre at Virochan Nagar, the park is expected to attract investments worth Rs 50,000 crore in the logistics and transport space.

Brihanmumbai Municipal Corporation is now considering issuing ‘municipal bonds’ to raise funds from the share market for its ongoing infrastructure projects. The civic administration is currently working out details of the plan with various committee heads and public representatives. It is considering alternatives to raise funds for some infra projects, like sewage treatment plants and for the Mithi river rejuvenation project, among others.

The Ministry of Statistics and Programme Implementation monitors infrastructure projects worth Rs 150 crore and above. Of the 1,687 such projects, 450 infrastructure projects, each worth Rs 150 crore or more, have been hit by cost overruns totalling more than Rs 4.28 lakh crore and 558 projects were delayed. The expenditure incurred on these projects till December 2020 was Rs 12,17,692 crore, which was 47.33 per cent of the anticipated cost of the projects.

Out of 558 delayed projects, 111 projects have overall delay in the range of 1-12 months and 135 projects have delay of 13-24 months. As many as 187 projects reflect delay in the range of 25-60 months and 125 projects show delay of 61 months and above. The average time overrun in these 558 delayed projects is 45 months. Reasons for time overruns as reported by various project implementing agencies include delay in land acquisition, delay in obtaining forest and environment clearances, and lack of infrastructure support and linkages. Delay in tie-up for project financing, delay in finalisation of detailed engineering, change in scope, delay in tendering, ordering and equipment supply, and law and order problems, among others, are the other reasons, the reports said. The report also cited ‘state-wise lockdown due to COVID-19’ as a reason for delay in implementation of these projects.

Three public sector banks, including State Bank of India (SBI) and Punjab National Bank (PNB), are saddled with Rs 9,922 crore of non-performing assets (NPAs) in the roads sector, according to documents shared by the banks with the parliamentary panel on transport, tourism and culture. Among the PSBs, the State Bank’s NPAs stood at Rs 4,077 crore as on 30 June 2020, which is about 7 per cent of its outstanding credit of Rs 55,941 crore to the roads sector, showed the documents. The bank’s total exposure to the sector is Rs 71,546 crore. Punjab National Bank’s bad loans in the sector stood at Rs 3,548 crore as on 30 September 2020. Its total outstanding to roads and ports sector was at Rs 30,400 crore, according to the documents. The Central Bank of India’s NPA in the sector stood at Rs 2,297 crore as on 30 November 2020, which is 48 per cent of its outstanding credit, according to data shared with The Print by an MP who is part of the parliamentary panel.

The total outstanding of Indian banks to the road sector is Rs 1.95 lakh crore, showed the documents, which were presented by the banks to the parliamentary standing committee, which is led by BJP Rajya Sabha member T.G. Venkatesh, at a meeting on January 08, 2021.

Photo credit: Rajesh Pamnani/Flickr

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