M&A and InvITs to account 12% of total infrastructure fund requirement

According to India Ratings & Research, infrastructure deals, especially in road sector, in the form of Infrastructure Investment Trusts (InvITs), is likely to gain traction in 2017. “We estimate Rs 0.4 trillion (Rs 400 billion) of funds to be raised by the infrastructure sector from 25 major mergers and acquisitions (M&A) and InvITS, in 2017,” the rating agency said in its latest report. Further, it said an analysis of 66 large borrowers in the infrastructure sector reflected that “The deals would contribute only 12% of the total equity requirement of Rs 3 trillion – Rs 4 trillion to make it sustainable.”

As per Ind-Ra, the funds raised through M&A and InvITs could support several cash-strapped infrastructure developers. Segment-wise, Ind-Ra expects Rs 173 billion to be raised by performing assets in the road sector through M&A deals and InvITs in 2017, due to monetisation of road projects (toll, operate, transfer) and tax efficiency.

“This contributes one-third of the total equity need to deleverage to a sustainable level,” the report said.

It noted that the segment is likely to benefit from the Union Budget 2017-18 allocation of Rs 900 billion for road and highways, with an aim to stimulate private sector participation.

The thermal power segment is likely to continue witnessing domestic consolidation this year. “A potential equity of Rs 60 billion is likely to be unlocked from M&A deals in the thermal power sector,” Ind-Ra said, adding that the amount is a negligible 4% of the entire equity requirement. On the renewable energy front, Ind-Ra expects Rs 69 billion of equity released from this segment and would contribute one-third of the sector’s total equity requirement to deleverage to a sustainable level.

Besides, M&A activities and InvITs in other sectors such as transmission, airport and ports, are expected to unlock equity worth Rs 59 billion, the report said.

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