Morgan Stanley Infrastructure Partners is close to investing about $200 million in three highways and road toll projects promoted by Hyderabad based Soma Enterprises. The infrastructure focused fund will route the investments through Isolux Corsan Concessiones Cyprus Ltd, a Cyprus based holding company, floated for this purpose, sources close to the development told VCCircle.
According to information available with VCCircle, the Cyprus based investment entity will be a subsidiary of Grupo Isolux Corsan Concessiones S.A., a Spanish Construction major, which in turn through its wholly-owned subsidiary, Isolux Corsan Concessions India Pvt. Ltd (Isolux India), will hold 50% equity interest in three SPVs of highway concession projects of Soma Enterprises.
When contacted, Morgan Stanley Investment Partners corporate communications department said, "We dont comment on market rumours". A spokesperson from Soma Enterprises also said that they would not like to comment on the story. An email sent to Isolux Corsan did not elicit any response till the time of writing this report.
Sources say that the infrastructure focused investor has issued a term sheet to Soma Enterprises to this effect. This will be the second major fund infusion into Soma Enterprise. In 2008, the company, which is one of the country’s fast growing infrastructure development companies, raised $101 million from 3i India Infrastructure fund at an entity level.
According to the current deal, the Isolux India Group, as the entity will be called, will be responsible for the construction and development of the following projects: Soma-Isolux Surat Hazira Tollway Pvt.Ltd, Soma Isolux Kishangarh Beawar Tollway Pvt. Ltd, and an SPV to be formed for the Varanasi-Aurangabad project.
MSIP will commit to invest upto $200 million in various tranches throughout the life of the group and Isolux Corsan who is also the sponsor to the project will commit to invest upto $185 million.
With the exception of funding in 2010, for each year starting 2011, Isolux Corsan, the sponsor to the group, will be required to fund the first draw and MSIP will be required to fund the second draw.
Interestingly, the investors will also look at listing of Isolux India Group Assets, bundling up all the highway assets and listing them on the exchanges, much like REITs are floated for real estate assets.
For Morgan Stanley Infrastrcuture Partners, this clearly is more of an annuity play or a regular stream of dividends being generated by these projects. The investment firm earlier this year led a $425 million round of funding in Asian Genco, a Singapore based company with power generation assets in India.
Globally, the firm has invested in Chicago Loop Parking, the largest underground parking system in the US, and also in a Chilean electricity distribution, generation and transmission company.
The road sector has been increasingly attracting the attention of private equity players. India may require $1.7 trillion in the decade starting 2010 to meet infrastructure demand and keep pace with economic growth and urbanisation, said a report by Goldman Sachs. Of this, power and roads alone may require upwards of $700 billion.
In a recent deal, Norwest Venture Partners and Xander Group invested Rs 400 crore in Sadbhav Infrastructure Project, which has a portfolio of nine concession based projects. Nandi Infrastructure Corridor Enterprises Ltd (NICE), which is developing the 164-km tollway between Bangalore and Mysore, is currently in talks with PE players to raise funding of around $100 million.
Private equity major Actis formed a $200 million joint venture with Tata Realty & Infrastructure to develop roads and highways. India Venture Advisors also invested Rs 50 crore in C&C Constructions, a players in roads and highways.
The government is also in discussions with Singapore state investor Temasek to set up a $2 billion road fund, said a report in Wall Street Journal in June.