Core sector likely to attract investments up to $320b

MUMBAI: private equity deals worth $1-billion have been lined up for infrastructure, construction and engineering companies. “PE funds are gung-ho about India’s old economy companies. As the economy grows at 9%, infrastructure, construction and engineering companies have come into the limelight. PE players are looking at 15-20% returns in listed companies and 20-25% in unlisted ones,” said another source.

According to Shahzaad Dalal, vice-chairman and managing director, IL&FS Investment Managers, the government’s increased focus on the ICE sector is translating into quick investments. “An estimated $320 billion investment is expected to flow into the sector, especially in road, rail and power. This is, indeed, giving a boost to companies in the infrastructure, construction and engineering space. Further, the Jawaharlal Nehru Urban Renewal Mission, launched in 2005, has promised investments of Rs 50,000 crore in next 2-3 years. This has added to the sector’s potential,” said Mr Dalal.

An investment banker said PE players are now ready to take the construction risk, which is the main risk in any BOT/BOOT (build operate transfer / build own operate transfer) project. “If the construction risk is managed well, one can reap rich dividends after the project completion,” he said.

“A year ago, a coal company raising funds through private equity was considered a Herculean task. Not any longer. For instance, Gupta Coal is in the process of raising Rs 225 crore by selling a minority stake to a PE investor,” says another investment banker.

This follows a recent deal by Warburg Pincus, which invested $66 million in Aryan Coal Benefications, the largest provider of coal benefication (washing, processing and removal of impurities from coal) services in India.