A big churn in the highway sector is round the corner. As infrastructure majors are selling assets, a lot of developers are looking at making a complete exit from the business to reduce debt and de-risk themselves.
Anil Ambani-led Reliance Infrastructure (R-Infra), has decided to completely exit the business by selling all its 11 assets to Canada’s Brookfield Asset Management for ₹9,000-10,000 crore.
The deal which is expected to close in next 2-3 months, will be the biggest highway assets deal in the recent past. It help the Indian company reduce its debt by Rs 5500 crore.
Till now, infrastructure players such as GMR, GVK, Essel and Essar have been selling only parts of their portfolio.
Though Gammon Infrastructure recently exited 9 projects, of which 6 were highways, valued at Rs 6,750 crore to Brookfield and Core Infra India Fund, fetching Rs 563 crore.
Brookfield which sees immense scope in such assets, in July, announced a JV with India’s largest bank -- State Bank of India (SBI) committing Rs 7,000 crore to purchase distressed assets. The fund will independently evaluate and invest in various stressed assets and will rely on the Canadian asset manager’s operational expertise to manage recapitalized businesses.
Experts say such deals are paving way for freeing up stuck equity and allowing the lenders too, to introduce fresh funding in the new projects. According to industry estimates, total exposure by lenders to highways is as high as Rs 2.12 lakh crore.
“With developers selling assets, it will help the sector develop a new O&M vertical for long term O&M operations, as separate from development and construction. It will also free up a lot of developer equity giving them a chance to bid for fresh projects and in cases, where developers are not wanting to continue in the highways business, then the money raised by asset sales will come back in the system, if not in highways then in other sectors. Thereby, the stuck liquidity cycle will churn and pave way for fresh fund infusion which would go a long way in bridging our infrastructure deficit” said Rohit Singh, Joint Secretary in the ministry of highways.
Though, analysts have generally been positive about asset monetization efforts, given that the balance sheets of many of these players will get de-leveraged. But the fact remains that many of these deals are also being seen as distress sales.
“India has seen one of the highest number of public-private partnership (PPP) projects amongst the developing countries. However, over the last few years, there has been a slowdown in award of PPP projects particularly in the highways sector. There are many factors contributing to the decline in private sector interests including weak financials of many companies, higher risk involved, lengthier dispute resolution mechanism, and funding constraints which have been pulling down the valuations,” Rohit Inamdar, Senior Vice-President, ICRA said.