Mumbai: The merger and acquisition (M&A) activities in the Indian road sector is expected to gather further pace in the coming days as a healthy growth in highway traffic and reduction in interest rates have made it attractive for foreign investors to pick up stake in several projects.
According to ICRA, Brookfield Asset Management (Canada), Canadian Pension Funds, Macquarie (Australia), I Squared capital (USA), Cube Highways, Spanish infrastructure firm Abertis Infraestructuras SA and IDFC Alternatives are the major investors currently looking for assets in the sector. Global pension funds are also increasingly looking at acquiring road assets and staying invested for the long term.
Asset sales in the road sector have picked up over the last twenty-four months with the relaxation in exit policy for highway developers.
Sponsors in around 20 road assets involving a total cost of Rs 12,327 crore have monetised their assets as opposed to around Rs 7,000 crore in the preceding 50 months. Three out of the twenty are state road projects and the remaining are national highway projects.
With the increase in wholesale price inflation (WPI) and the continued healthy growth in traffic, the toll collections are expected to grow by 10-11 per cent over the next two years, ICRA said.
As the valuations have improved following a favourable outlook on toll collections and decline in interest rates, the rating agency believes that the asset sale transactions would gather further momentum in coming days.
“Projects with at least five to seven years of operational track record provide more comfort as the base traffic, growth rates and expenditures pertaining to regular or periodic maintenance would have been established. Further, issues related to user acceptability of toll rate revisions and toll leakages (if any) are also addressed. An operational track record covering one periodic maintenance cycle builds investor’s confidence in the road assets. Hence, projects awarded before 2009 are ideal candidates for the asset sale,” said Shubham Jain, vice president and sector head, corporate ratings at ICRA.