The Indian road sector will require investments in the $100-120 billion
over the next five years, as per the most recent estimates.
The private sector is expected to contribute 44 per cent of the
total projected spend. Strong macro indicators and pro-investment government
policies have ensured continued growth in road sector. Private
investments have soared—total FDI in construction sector (including
roads and highways) from April 2000 to November 2011 stood at $10
billion, according to Department of Industrial Policy and Promotion statistics.
Among the major recent investments in the road sector, JP Morgan invested $65 million in
Nandi Economic Corridor Enterprises, 3i IIF invested $61 million in Supreme Infrastructure
India, JP Morgan infused $110 million in Soma Enterprises, Morgan Stanley invested $200
million in Isolux Corsan India, and 3i IIF invested $111 million in KMC Infratech.
Majority of the transactions have happened at Asset holdco levels, as it simplifies the exit
mechanism for the investors through listing of asset holding company. Another investment
structure increasingly being used is joint ventures. Tata Realty - Actis, Piramal - IDFC - SNC
Lavalin and Morgan Stanley - Isolux Corsan SA are some of the key joint venture transactions.
It is a win-win scenario for both the parties; investor gets greater involvement in every
level of decision making right from selection of road to financial closure, whereas developer
gets prior equity commitments leading to speedy financial closures.
Due to aggressive bidding and increased competition, developer margins have taken a hit,
especially in NHAI projects. Investors have thus started exploring investments in balanced
portfolios with a mix of NHAI and state road projects and toll-based and annuity projects.
(Sandeep Upadhyay heads the Infrastructure Solutions Group at Centrum Capital,
which is a Mumbai-based investment bank.)