Infra companies rope in foreign partners

This story first appeared in DNA Money edition on Monday, July 1, 2013

Last week, IL&FS Transportation Networks (ITNL) partnered with Japanese road construction firm East Nippon Expressway Co to tap public private partnership (PPP) projects in India. 

Tata Sons’ wholly owned subsidiary Tata Realty & Infrastructure Ltd (TRIL) is seeking foreign collaborations to bid for urban transportation projects, a space it believes will only get bigger in the coming years. 

For airports development, TRIL is understood to have got on board a foreign partner to bid for upcoming projects. 

A host of other infrastructure companies too are seeking foreign allies to grab a bigger share of Indian  infrastructure growth story. 

Overall infrastructure spend under the 12th Five Year Plan (2012-17) is estimated to be around $1 trillion (Rs 60 lakh crore). Half of the figure is expected to be invested by the private sector. 

“In terms of the overall capacity addition, it would be the largest infrastructure build-up in the country and more than what has been built in the last two Five Year Plans put together,” said Mukund Sapre, executive director, ITNL. 

He said the power sector will see the largest investment at Rs 15 lakh crore, followed by road and bridges (Rs 9.5 lakh crore), telecom (Rs 8.5 lakh crore), railways (Rs 4.5 lakh crore), irrigation (Rs 4.5 lakh crore) while ports, airports, water and sanitation, logistics, etc will make up the rest.

But why foreign collaborations?

Sanjay G Ubale, MD & CEO, TRIL, said “Foreign collaborations have become important as infrastructure projects are now getting bigger and complex requiring a lot of technology in terms of construction in addition to sound project management skills.” 

He said such tie-ups help in pre-qualifications in the government tenders.

“There are various terms and conditions required to be fulfilled to pre-qualify when the government puts out a tender. Some of these criteria can only be met by a foreign construction company,” Ubale said.

TRIL had partnered with French company Vinci for the Mumbai Trans Harbour Link – a Rs 9,360 crore, 22 km freeway grade road bridge connecting Mumbai and Navi Mumbai. The contract is likely to be awarded by August.

Also, the infrastructure projects tend to be very large, calling for significant investments, which a single company may not be able to garner. 

Most collaborations happening currently are for attracting foreign capital. 

“Since in any collaboration the partner has to bring in capital to the extent of his participation, financial health is an important criteria,” said Sapre.

Sensing opportunity, many financial institutions too have formed joint ventures to build up infrastructure portfolios such as infrastructure fund by Macquarie-SBI. 
Similarly, many other non-banking financial companies have set up infrastructure development funds to provide debt funding. 

Of the total infra spend Rs 40,000 crore is estimated to be expended on the EPC works for roads, ports, solar power, thermal power, railways, etc. giving ample opportunities for private investment. 

“The total investment envisaged during 2012-2017 is estimated to be $800 billion. The Indian infrastructure companies should see their order book growth by 20% annually over the next five years,” Sandeep Upadhyay, senior vice-president and head-infrastructure solutions group, Centrum Capital, said. 

While all the infrastructure sectors provide excellent opportunities for investments major attractions would be in categories such as roads, railways, ports, power and airports, he said.