The privatisation of airports will provide a good opportunity for investments as all of them need funding support, says Satish Mandana, managing partner & chief investment officer, IDFC Alternatives.
"As more and more airports are going to get privatised and low cost airports come into the picture this space has good oppurtunity. But existing airports also offe some investment opportunities because they are leveraged and they do require funding support at some level," he explains.
Also read: Tata withdraws airport privatisation bid after bank licence
Speaking to CNBC-TV18, Mandana says the time is right for investing into the infrastructure sector and for acquiring assets.
Also read: GMR Infra sells entire 40% stake in Istanbul airport
He believes social infrastructure- healthcare, hospitality and education-pose good investing opportunities.
Mandana further adds that the company has raised USD 644 million for its second infrastructure fund. Below is the edited transcript of the interview to CNBC-TV18.Q: There are so many companies that are now making some genuine attempts to deleverage their balance sheet, we heard about GMR Infrastructure a while back, there are talks about the Jaypee group as well, realistically do you see many of these stake sales go through?
A: I do see many of these stake sales go through because it has dawned on the developers as well as on the bankers of this nation that we cannot be just kicking the can downhill, and that is something we have been doing for a while. Genuinely, it is a phenomenon which happens every time globally where the infrastructure developer churns his portfolio for creating a better portfolio. So, I do feel and I do see a lot of secondary transactions happening.
Infact, I was commenting to the IFC Washington who provides funding support to infrastructure in emerging markets that instead of looking at just a new bid, getting an Indian developer is a great service to the nation because he is more capable to go back and create in comparison to a newcomer who still has to struggle through the policy framework and other challenges to create the asset.
Q: Can you give us some details as to how much you have spent of that USD 644 million just raised, has anybody received some of that money?
A: USD 644 million we have just raised, we announced the first closure in October and we are just in December. So, we have a couple of proposals in pipeline at this juncture but any private equity proposal takes time to really get fructified and hence we will be announcing something in the near future but till now we have not made any announcement yet from our second infrastructure fund.
Q: What are your most recent investments, all your infrastructure funds put together?
A: We manage five infrastructure funds, three on a private equity side and two on infrastructure equity side. Our most recent investments have been into social infrastructure around healthcare, agriculture which are the areas where we feel there are significant opportunities.
The conditions prevailing in the country today in relation to the outlook for the economy and outlook for the infrastructure are very similar to what they were prevailing in 2003-04 when we raised our first private equity fund on infrastructure side. We closed this fund recently in October this year delivering a 30 percent net fund IRR to our investors. So, that is the proof of the pudding that infrastructure can actually generate money for the investors and timing is right today to really invest into infrastructure.
Q: Within the infrastructure sector in 2014, where are you spotting the opportunities now within say roads or ports, airports? Within the sub sectors what are you noticing?
A: There are lots of opportunities which are coming out in the roads and power sector, we are also seeing some opportunities in the ports. Airports there are new opportunities which are going to emerge going forward as more and more airports are going to get privatised and low cost airports come into the picture. But existing airport also offers some investment opportunities because they are leveraged and they do require funding support at some level.
Q: At what point will you buy any of the already leveraged infrastructure guys?
A: As a fund , we will buy asset at a price level which creates decent return for our investors and typical infrastructure equity fund looks forward to high teens kind of returns, it doesn’t look forward to a 20 plus which a private equity fund looks forward to.
The very fact that the deals are getting consummated shows that few of the assets will be sold at a price less than the book value in all likelihood, but it will get sold for sure and we will see announcements coming out where people have sold at less than book value just to deleverage themselves.
Q: We know some of the highly leveraged groups now in roads and power, you suspect that they will have to take either debt haircuts or give off their equity at much lower than book value?
A: It depends on how aggressively they will bid for those assets when those assets are created particularly, the assets which were created in a bidding process. Obviously in days of 7-9 percent growth reaching up to fag end of 8, the competitive intensity for the asset built-up was very high. People bid these assets assuming a Gross domestic product (GDP) growth of 7 percent plus, on a constant basis they have bid it on equity IRR of around 13-14 percent assuming that the market will pay them 11 percent which has not panned out.
Hence, those people might need to take a significant haircut on their equity value. I don’t foresee banks taking a haircut in those asset transactions in the near-future. Banks have kept a margin to themselves unless a scenario has happened where the equity itself was a debt coming out of the bank masquerading as our equity then obviously the bank has to take a haircut also.
Q: You did recently purchased the 74 percent stake in the GMR project, are there any more of these companies that you guys are looking at where any stake sale talks are on the cards, either Nagarjuna Constructions, IVRCL, Lanco there are so many that are looking to deleverage their balance sheet and anything within 2014 itself?
A: Yes, all the top suspects are on the target list, more than that there are many companies which are not listed as such and who are also looking forward to monetize their assets to really go forward and use the resources to deleverage. Currently the market is ripe for buying operating assets, acquiring stake in operating assets in comparison to the construction and development which still remains in a policy logjam and which will take some time to getting sorted out.
I would further add that the social infrastructure really offers a good opportunity which includes healthcare, hospitality and education as a good opportunity for investment at this juncture in infrastructure.
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