Edelweiss Financial Services Ltd arm Edelweiss Alternatives backed platform, Infrastructure Yield Plus, announced its biggest deal so far on December 17 by signing a pact with engineering major Larsen & Toubro Ltd and Canada Pension Plan Investment Board to acquire a 100 percent stake in L&T Infrastructure Development Projects Ltd (L&T IDPL) for an enterprise value of around Rs 6,000 crore.
Subahoo Chordia, Head- Infrastructure Funds, Edelweiss Alternatives, who worked closely on the deal, spoke to Moneycontrol’s Rachita Prasad about the rationale behind this deal and growth ambitions. He said that Edelweiss Alternatives has raised over Rs 11,000 crore since April this year and has an appetite for more acquisitions. While the platform will focus on energy and roads, it is also exploring diversification into new segments. Edited excerpts of the interview:
What does the acquisition of L&T IDPL mean to your investment strategy?
Our investment strategy is to buy quality operating assets, which are already generating cash flow. L&T IDPL platform comprises good quality assets, which have been built and developed by L&T. These assets have an average operating history of around 11 years with an average residual concession period of 14 years and have been cash-flow generating. Post confirmatory diligence and assessment of our targeted returns based on discounted cash flows, we felt this was a right fit and in line with our strategy. Apart from the assets, this platform also has an experienced team that we felt would augment our capabilities. Earlier, we had acquired a large portfolio of energy assets from Engie Group (of France). The acquisition of this portfolio of highways will help us both to diversify and scale up our asset mix across energy and highways.
How did you come to the valuation and what is the return on investment (RoI) target?
We are a cash flow-based investor and valuation or returns on investment were derived on the basis of discounted cash flows. We will not be able to disclose the returns we are making on this transaction. The deal is at an enterprise value of around Rs 6,000 crore, and given the kind of revenue and EBITDA (earnings before interest, taxes, depreciation, and amortisation) this portfolio generates, which is well known in the market, there are comparable transactions in the market for people to correlate.
What is the typical RoI you target that can make or break a deal for you?
It's a risk-adjusted return strategy and the returns we are going to make cannot be disclosed. The strategy focuses on delivering superior risk-adjusted returns and consistent yields to investors through the aggregation of assets with pre-defined core characteristics. The fund structure enables multiple exit options to optimise returns.
L&T IDPL has transferred some of its assets in and is a sponsor to an infrastructure investment trust IndInfravit Trust (IndInfravit). Will your investment be restricted to the assets that are left in L&T IDPL? Or would you be open to picking up a stake in the trust?
No, our investment is only restricted to the assets remaining in IDPL and the team there.
What is your overall investment strategy?
We started developing an infrastructure portfolio about four-five years back with the acquisition of power transmission assets. We then added renewables and road assets into our portfolio. Post this acquisition, we will have 13 highway assets, which is quite sizable. We will also have three transmission assets along with almost a gigawatt of renewable energy assets. The cumulative annual revenue of the whole portfolio will be close to Rs 2,700 crore across our investment vehicles. Broadly, our portfolio will be split 60-40 between highways and energy.
Would these assets be merged into one bigger entity?
No, renewable energy and highways will remain separate independent portfolios. Transmission assets are housed under energy business.
What is your assets under management (AUM) target?
The AUM of Edelweiss Alternatives as on Q4FY22 was Rs 30,500 crore. It is now over Rs 44,000 crore. We will continue to keep growing with a focus on quality rather than size. Our vision is to be a respected and trusted alternatives asset manager, which basically means that we are focusing more on the quality of the transaction and the underlying assets, rather than size and scale.
After the L&T IDPL deal, what kind of fund raising would you be doing?
We keep raising capital through our existing and new LPs and clients. We continue to raise more capital in our infrastructure fund and have received an extremely encouraging response so far. We have significant dry powder left for the platform to invest even after this deal.
So this dry powder that you're referring to, how much is it? Can you please quantify it?
This year since April alone, Edelweiss Alternatives as a platform has raised over Rs 11,000 crore and in addition to this, we can also look at other joint investing opportunities.
What is the kind of portfolio that Edelweiss Alternatives wants to build? What will be the new sectors you invest in?
Energy and transportation would be the two key focus areas; almost 70 percent of deal activity in the infrastructure space is in these two segments. We would like to diversify further into new infrastructure sectors with operating assets which can give us the desired risk-return profile. There is no negative list within infrastructure other than other coal-fired and gas-fired projects; we won’t invest in projects which have emissions. We continue to evaluate opportunities across digital infra, water, airports, etc on an ongoing basis.
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