Rewind 2014: Dealmaking in infrastructure sector flat, PE dry powder piles up

Infrastructure was one of the biggest causalities in the economy due to the policy paralysis of the previous government. Even though the new government has set the right tone with its focus on kick-starting activity in infrastructure development, the sector is yet to see any big wave in terms of investors betting big on the space.

Overall the infrastructure sector encompassing, power, oil &gas, construction, logistics and transportation services recorded around 45 private equity deals worth a little over $1 billion, almost the same level as the previous year, according to VCCedge, the research platform of VCCircle.

One visible trend was that while power as a sector saw lower investments flow in, construction witnessed a bump up, largely due to the mega deal where Canada's CPPIB bet on L&T Infrastructure Development Projects.

In terms of M&As, however, the aggregate value of deals announced rose even though the number of transactions fell marginally. There were 102 deals with an announced value of $9.5 billion as against 105 deals worth $8.2 billion in the previous year.

Within M&As the significant trend was power becoming the single biggest driver of action led by domestic deals as against cross border activity in oil & gas field in 2013.

Top PE deals

On the private equity investment side, the biggest deal was sealed when Canada Pension Plan Investment Board (CPPIB) bet $321.4 million on L&T Infrastructure Development Projects Pvt Ltd, a unit of business conglomerate L&T. The first tranche comprising half of the total money has already been invested while the second tranche will pour in the coming twelve months.

The second spot is occupied by the ReNew Power, a renewable energy producer, which attracted PE capital of $140 million from Goldman Sachs, ADB and Global Environment Fund.

The other three deals to push themselves to the top five are Greenko raising $125 million from EIG Global Energy Partners, Welspun Renewables raising around $85 million from ADB and DEG besides Sterlite Power Grid raising $83 million from Standard Chartered PE.

Fundraisers, dry power

While PE investments in infrastructure did not see any leg up, the year saw a big development with respect to fundraising. IDFC Alternatives raised what is arguably the biggest pool of money to invest in rupee terms, for infrastructure. It made final close of its second fund investing in infrastructure assets in India at Rs 5,500 crore ($900 million) for its, which also happened to be the single biggest fund ever across investment themes raised for India.

This fund is the successor to IDFC Alternatives’ debut infrastructure fund – India Infrastructure Fund – which closed in June 2009 with a fund size of $927 million against its target size of $1.25 billion, from Indian and international institutional investors.

Although the dollar size of the new fund is smaller in comparison with its predecessor, it packs a larger corpus in local currency and would therefore have more money to invest.

UK-based 3i had also raised a much bigger $1.2 billion India infra fund way back in 2008. However, in rupee terms that fund too had a smaller corpus, making IIF II the single biggest infra investment corpus to date.

Indeed, others are also bullish on India infra space. Early this year, diversified cash rich firm Piramal Enterprises Ltd formed an alliance with Dutch pension fund asset manager APG Asset Management for investing in rupee-denominated mezzanine instruments issued by Indian infrastructure companies with a target investment of $1 billion over the next three years. Both partners have each initially committed $375 million for investments under this strategic alliance.

This marks initial positive signs of how PE firms are once again looking at Indian infrastructure space.

Even though fundraising saw better prospects dry power of infra funds kept on piling up. The dry powder of SEBI registered infra funds crept up to the $1 billion mark and such infra funds account for two-thirds of dry powder with all PE firms, as of June 30, 2014.

This indicates that PE funds remain cautious on deploying funds in infrastructure companies despite the positive sentiment with the new government in place.

Top M&As

On the M&As side, Adani Group struck a slew of large deals worth $2.6 billion put together and JSW Energy sealed a big deal in hydro power.

JSW Energy inked a deal to buy two out of the three hydro power assets of Jaypee Group for $1.5 billion, making it the single largest M&A in the infra space this year.

Adani's struck three deals across its ports and power businesses. Adani Ports and Special Economic Zone acquired The Dhamra Port Co Ltd for a whopping $926 million while Adani Power struck two large deals. It snapped Lanco's Udupi power unit for close to $1 billion while it snapped Avantha's Korba unit for $680 million.

Among other significant transactions were IOC buying a stake in Petronas' Canadian gas assets and Tata Power inking a deal recently to buy Nagpur-based thermal project by Ideal Energy and Projects Ltd.

Interestingly, bulk of top deals were in the power generation space.


The year also saw a bunch of infra companies heading to the capital market for their initial public offering (IPO). Goods and passenger transport services provider VRL Logistics, toll management firm MEP Infrastructure, Sadbhav Infra and PNC Infratech filed documents for the public floats.

Snowman Logistics Ltd, a cold chain unit of Gateway Distriparks Ltd, made a blockbuster debut on the bourses.

Turbulence in the air

Aviation industry continued to see lots of activity with some new airlines taking to the skies while others hitting air pockets.

The biggest development this year was entry of AirAsia which has come in through a tripartite partnership involving Tata Group. Although still in limited routes, it has the potential of shaking up the industry.

Jet, which had roped in Etihad as a strategic partner the previous year, decided to consolidate its operations and took a call to shut down its separate budget brand JetLite, making it a pure full-service airlines. This would allow it to focus on the impending competition from Tata Sons' new full-service airlines Vistara which takes off early next year.

Meanwhile, in the budget carrier space, SpiceJet edged close to the brink of a collapse. Its founding promoter Ajay Singh is reportedly partnering JPMorgan Chase to revive the flagging business.

One big event to watch out for in the coming year would be the launch of Vistara, which is expected to take to the skies within the next few weeks. Vistara is the JV between Tata Group and Singapore Airlines.

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