Sadbhav Infrastructure Project Ltd, an infrastructure sector player primarily involved in the development of highways and road projects, is raising Rs 400 crore (approx $86 million) from Norwest Venture Partners and The Xander Group Inc. The two PE firms investing Rs 200 crore each for a 22.22% stake in Sadbhav Infrastructure, giving a post-money valuation of Rs 1,800 crore.
Sadbhav Infrastructure is a wholly owned subsidiary of the BSE and NSE listed Sadbhav Engineering Ltd, which is involved in engineering, construction and development of infrastructure projects. Sadbhav Engineering has the option to invest another Rs 200 crore in the company within 18 months after which the investors stake will be 20%.
The new capital is expected to be used for funding existing road projects and bidding for new road development projects in the national and state highway development programmes, as well as other infrastructure development projects, said Sadbhav in a filing. The company has already constructed more than 1,200 km equivalent of four lane highways and 785 km are under construction at various stages.
Sadbhav Infrastructure is Sadbhav Engineering's holding company for all infra development projects. Sadhbhav currently has nine projects with a total cost of Rs 7,800 crore currently which will be transferred to Sadbhav Infrastructure.
The shares of Sadbhav Engineering rose by 6.45% reaching Rs 1,624 after the new before coming down to Rs 1,593 at 11.:27 AM.
"What we like about the portfolio of assets is all the projects have achieved financial closure. The projects are located on very good traffic stretches and there is a concentration on northern and western part of the country, where people's propensity for paying tolls is well established," explained Sohil Chand, Managing Director at NVP India.
Among Sadbhav's nine concessions, four are already operational while five are under construction. These include projects like Ahmadabad ringroad, a stake in the Mumbai-Nashik expressway and Rohtak-Panipat road, Hyderabad-Yadagiri stretch which connects to a major pilgrimage site.
Sadbhav Infrastructure also has a very unique project in Maharashtra border check post, where they have to build entry check posts across 22 points and provide services checking vehicles, taxes etc. "It's a one of its kind project in India and we think it will be a template
for the checkpoints," said Chand.
Norwest made its first investment in India's infrastructure sector earlier this year when it part of the consortium that invested $425 million in Asian Genco, which is currently developing a portfolio of 4,000 MW. Now the venture and growth capital investor, whose investments include National Stock Exchange (NSE) and Shriram City Union, is eyeing areas like logistics, urban development and construction.
"An investment of approximately 75 billion USD is expected in the road sector in India over the next four to five years, with an immediate opportunity of 5 billion USD being invested in the next six to 12 months to upgrade and strengthen existing highways across the country," said Sid Yog, Managing Partner of The Xander Group. Xander invests in sectors like real estate, hospitality and retail in India and has committed $1.8 billion across five dedicated funds since 2005.
YES Bank Limited acted as the sole strategic and financial advisor to SIPL and Sadbhav for this transaction, while Wadia Ghandy acted as the sole legal advisor. Shearman & Sterling and J. Sagar Associates were the joint legal advisors for NVP and Xander.
"The opportunity in the roads sector is immense and we believe that the progressive road development policies of the Government will create strong growth in this sector over the next 10+ years," said Chand.
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.
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.
In a recent large deal, 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 player 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.