IDFC Alternatives Fund buys operating roads that have a track record of revenue generation, which will continue into the future, says Managing Partner & CEO MK Sinha.
GMR has sold a majority stake in a highway project to the India Infrastructure Fund of IDFC for Rs 222 crore. IDFC Alternatives Fund has made the first close of USD 644 million in its USD 1 billion infrastructure fund. In an interview to CNBC-TV18, Managing Partner & CEO MK Sinha spoke about this deal and the road ahead.
Below is the edited transcript of MK Sinha’s interview with CNBC-TV18
Q: Why the interest in GMR’s road business and this Rs 222 crore, have you paid upfront for this stake?
A: It is an acquisition of a majority control. We are buying 74 percent equity in operating toll road which has three years history of operations. It falls in line with our strategy of buying low risk assets from leveraged infrastructure developers who are looking to correct their capital structure by lightening up on debt. This is in line with our funds strategy.
Q: The road developers themselves are not too bullish on this particular space, what makes you bullish?
A: We are not developing roads. We are buying operating roads that have a track record of revenue generation, which will continue into the future. Infrastructure assets are fundamentally attractive. The problem that we have had in the Indian infrastructure sector has been more to do with the development in construction aspect. We are not buying development and construction projects, we are buying operating projects.
Q: With regards to the GMR project, how according to IDFC did you value the 74 percent stake and is this now a trend which is emerging that you might be bidding for road projects simply alluding to the fact that a lot of these companies are now looking to reduce debt significantly?
A: That is the opportunity right now. A lot of infrastructure developers are overleveraged. They need to correct their capital structure, the only way they can correct their capital structure is by shedding assets and paying down debt. We come in there and we buy out operating assets, which are relatively low risk and fall into a strategy of generating a long-term inflation hedged returns for our investors. This project is one of those acquisitions, which fall in that strategy. The returns are in line with our expectations, which are basically high teen returns over the long-term.
Q: What is the pipeline looking like on the bidding aspect then, how many more projects could you be bidding for on similar lines?
A: We are not bidding for developments or construction of project. But there was a huge pipeline of operating assets in the market. We are looking at a lot of them with great degree of interest. We now have a new fund in place to execute on our acquisition strategy.