Global PE funds set to hit the road with $1.5 b kitty

Global private equity funds are set to drive on Indian roads. At least half a dozen PE firms, including Goldman Sachs, Lehman Brothers, Citigroup and few Gulf-based funds are keen on making a foray into the domestic road sector. Experts say funds worth $1-1.5 billion may be invested in the next 6-8 months. This would be the first time PE investments of such magnitude would flow into the sector.

“The road sector is witnessing unprecedented interest from global private equity majors. With returns expected to be good, PE investments to the tune of $1-1.5 billion is expected,” said Punj Lloyd chairman Atul Punj. Goldman Sachs recently picked up 5% stake in IL&FS Transportation Networks Limited (ITNL) for a consideration of $20 million. ITNL is a vehicle promoted by IL&FS to spearhead its initiative in the roads sector.

Industry experts say PE firms are in talks for investing in public-private partnerships (PPP) projects in which revenue stream has been fixed and identified. “They are scouting for a lot of deals in the road sector, which not only have a fixed and defined revenue stream but also have shorter gestation period,” said a leading investment banker.

Construction companies are in discussion with PE funds for jointly investing in road projects through the SPV route. Investment bankers say deals in southern and western parts of India are being discussed and some of these are in the range of $50-80 million. Several Gulf-based funds which have global expertise in managing road projects are also learnt to be interested in picking equity in Indian road projects.

Automatic approval of up to 100% FDI is allowed in the construction and maintenance of roads and bridges and in case of land transport support services such as the operation of highway bridges, toll roads and vehicles.

However, even after allowing 100% foreign direct investment in the sector, Indian roads till now have not attracted a lot of foreign investment. But with PE funds becoming gung-ho on this sector, investment may just start pouring into this sector.