Private Equity and Infrastructure Firms Vie for $1 Billion Road Projects in India

Several private equity and infrastructure investment firms are competing to purchase nine highway projects estimated to be worth up to USD 1 billion. These projects are being offered by Macquarie Group, based in Sydney. Among those interested in buying the projects are Cube Highways, Sekura Infrastructure Fund of Edelweiss Group, Actis, and KKR, all of whom are eagerly waiting for the opportunity.

Preliminary talks are ongoing, and Macquarie is currently in discussions with potential buyers. Unfortunately, due to the Covid-19 pandemic, traffic slowdowns and tightening interest rates in India have made it difficult for road assets to receive high valuations. These projects are located in Andhra Pradesh and Gujarat, and they are not expected to bring in the expected revenue.

In the past year, Macquarie sold its 56.8% stake in Gujarat toll roads and 100% of the Andhra Pradesh toll roads portfolio to the Adani Group at an enterprise valuation of INR 23,110 crore. The portfolio sold to Adani included a 972 km lane with an established traffic flow in strategically located traffic corridors in western and southern India.

Recently, KKR acquired Navayuga Group’s 75-km toll road between Kundapur and Udupi at an enterprise valuation of INR 924 crore. Navayuga Udupi toll road also operates a shorter 15-km stretch between Mangaluru and Kerala border. In June of last year, Actis bought Welspun’s six road projects for INR 6,000 crore.

India Ratings predicts that road projects will see a 100 basis point recovery in FY 2023-24 due to new contracts with revised pricing, following two years of depressed margins due to the pandemic. However, the road segment’s margin recovery is likely to be slow due to continued competitive intensity.

Conclusion

The competition among private equity and infrastructure investment firms for Macquarie Group’s nine highway projects is fierce. Due to Covid-19, the pandemic and interest rate tightening in India, road assets are currently receiving less-than-favorable valuations. However, India Ratings predicts that the road projects will recover in FY 2023-24, albeit slowly, due to new contracts with revised pricing.