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Private funds pave roads for India's infrastructure

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  • Private funds pave roads for India's infrastructure

    NEW DELHI/MUMBAI: With a $2.2 billion order book to build nearly 4,000 km (2,500 miles) of road lanes across India and its bank credit tapped out, KMC Constructions turned to private equity for funding.

    "I have a limitation on how many projects I can take, how much borrowing I can do," said Shashank Shekhar, vice president for business development at KMC Constructions, which in March landed a $111.5 million investment in a subsidiary from UK-based 3i India Infrastructure Fund.

    "So you must go for private equity to capture more and more and stretch your capacity," he said.

    Private equity investors are poised to play a faster-growing role in financing much-needed infrastructure projects in a country infamous for clogged roads and power outages and lacking a mature local bond market to provide long-term project funding.

    Indian companies that long balked at the idea of yielding a degree of control and ownership to private equity players are showing more appetite for deals, in part because of the scarcity of alternatives given high borrowing rates and an unwelcoming equity market.

    Friendlier government policies are also helping to make building projects easier, though delays and red tape remain problematic.

    Private equity investment in infrastructure in India has grown from about $1 billion in 2006 to $4 billion last year, a recent Bain & Company report found, predicting activity could grow 25-50 percent a year over the next three years.

    "Low levels of deal activity in the past had less to do with a lack of willingness to invest than with bottlenecks in the project pipeline and the need for a smoother government process for approving deals," the report said.

    "Those barriers are now beginning to fall." Private equity represents a modest share of the $1 trillion New Delhi says must be spent on infrastructure in 2012-2017, about half of which would come from private sector funds, compared with a target of one-third in the previous five years.

    The government is on course to meet its target to fund a third of infrastructure growth privately in the five years to 2012, but there are wide disparities between different sectors.

    Telecoms has received 82 percent of funds from private hands, compared with just 16 percent in roads and 4 percent in railways, government data showed in a review last year.

    For commercially unviable projects, the government injects more cash, known as viability gap funding (VGF), as an incentive to the builder, or can sweeten a deal with lucrative real estate concessions alongside a road or a metro line.

    To bring more funding into the sector, the government also plans to roll out a much-awaited $11 billion debt fund that could tap sovereign and insurance funds.


    New Delhi has missed many of its targets both for construction and funding in the past. Red tape and corruption are notorious, while delays over land acquisition and environmental clearances can derail billion-dollar projects.

    "The challenge is to make sure we are able to present opportunities to investors in a commercially robust and viable form," said Anoop Seth, co-head of Asian infrastructure at AMP Capital, a unit of top Australian wealth manager AMP .

    Source: The Economic Times

    We have a terrific golden quad. Lets hope this project also completes in a similar fashion.
    2004 Bajaj Discover 125 DTSi - 26000 KM - Sold
    2012 Suzuki GS150R

    My travel blog:

  • #2
    News Approved
    Happiness is finding you have another Gear left....

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    • #3
      and i sometimes wonder why toll taxes are charged for roads ...that can't be called roads at all. there are certain basic things that government should do without passing on the charges directly to people, roads is one of them.

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      • #4
        I agree. Road tax and toll charges. But almost 85 to 90 percent of what we pay as tax goes to the Netas pockets. With the remaining 10 percent nothing can be done. Enter private partnership. Eat more from them too. Increased toll for everyone.
        2004 Bajaj Discover 125 DTSi - 26000 KM - Sold
        2012 Suzuki GS150R

        My travel blog: