GRI interviews infra investors: Suresh Goyal (MIRA)

Indian infrastructure space offers great potential, says India Head of Macquarie Infrastructure and Real Assets.

November 5, 2018Infrastructure
GRI Hub is interviewing a number of major investors about the current scenario and prospects for infrastructure investments in India. This will be one of the main topics under discussion at the Infra India GRI 2019, which will take place on January 29th and 30th in Delhi.

Here's what Suresh Goyal, India Head and Senior Managing Director at Macquarie Infrastructure and Real Assets, says:

Early this year, Macquarie did one of the largest foreign direct investment (FDI) in Indian Infrastructure through the toll-operate-transfer (TOT) project. What are the company's plans for the long term?
Macquarie Infrastructure and Real Assets (MIRA), part of Macquarie Group, is the world’s largest infrastructure asset manager. Macquarie Asia Infrastructure Fund 2 (MAIF 2), a MIRA managed fund, was awarded the first package of 9 roads in February 2018, under the TOT privatization program of the Government of India. The first auction of TOT projects featured five highways in Andhra Pradesh and four in Gujarat, with a total length of 681 km. These roads have been awarded for a 30 year concession and MIRA believes they provide the right balance of growth and yield with appropriate risk management under the concession agreements. With the TOT investment, MIRA managed funds continue to be the largest infrastructure manager in the roads sector in India, managing a portfolio of over 1,850km. Over the past five years, Macquarie has had a successful and fruitful association with NHAI [National Highways Authority of India], and alongside various stakeholders are pleased to be involved in the design of the TOT process. We will continue to work with our various partners in the Indian infrastructure space in the long-term.

What is the investment potential in the infrastructure sector in India in the next 12-24 months?
India is one of the world’s fastest growing economies and the government has identified infrastructure as a major area of focus to drive this growth. This is reflected in the recent statement by the Finance Minister, Arun Jaitley, stating that USD 4.5 trillion worth of investments are required by India till 2040 to develop infrastructure to improve economic growth and community well-being. MIRA’s focus remains on the enduring success of our portfolio companies and the communities they serve. Our long-term approach is to build sustainable value throughout the investment cycle. We do not comment on potential acquisitions. However, MIRA aims to continuously curate a diversified portfolio with assets and investments in different sectors.

In your opinion, does the Indian infrastructure offer good opportunities in terms of risk-return?
We believe that the Indian infrastructure space offers great potential and Investors will continue to invest in the sector. Infrastructure is heavily driven by government policies and we believe that the Indian government has demonstrated continuous intent to drive investments in the sector, including suitable risk sharing mechanisms in the contractual structures. As the world’s largest investor in the infrastructure sector, we have a strong understanding of risks associated with the infrastructure sector and expect attractive risk-adjusted returns. However we don’t comment on specific returns.

Which Indian infrastructure segments seem to be more attractive in the current scheme of things?
While the Indian government continues to work broadly across all sectors, recent impetus has been on the further development of national highways and renewable energy. According to DFAT [Department of Foreign Affairs and Trade], improving transport infrastructure is critical to the liveability of India's cities. It is also central to India's productivity and the competitiveness of sectors such as agriculture and manufacturing. Transport is expected to attract the majority of infrastructure investment in India out to 2035. The government has announced an ambitious program to change the mix of electricity from majority thermal to primarily renewable, with the target of reaching c. 200 GW of new renewable capacity by 2022. To promote this, the government has launched an integrated program of phased bidding, renewable targets and increase in dedicated transmission and distribution capacity. MIRA is a full-service infrastructure firm and we have the capital to invest into various infrastructure sectors. Our existing investment in India has been in a variety of different sectors with a diversified portfolio, spanning telecom towers, airports, renewable energy and toll roads.

Do you see any kind of obstacles when it comes to global players investing in the Indian infrastructure? How is it possible to face them?
Every market is unique, with a different set of rules, regulations and levels of enforcement of governance frameworks that local and global investors should comply with. Familiarity and understanding of the local environment as well as engaging with stakeholders is key to investing in the Indian market. For example, our partnership with NHAI has been successful and we look forward to further collaboration with local institutions. MIRA has a strong local presence and leverages on the decade long experience of established relationships, market knowledge and understanding of local business practices.

Do you believe local investors have any kind of advantage or disadvantage when investing in the Indian infrastructure when compared to global investors?
A local team presence helps significantly in understanding and harnessing the local market. The government has taken a number of steps to reduce obstacles for foreign investors (for example, infrastructure assets can be 100% owned by foreigners) and we think that most international players can play at par with locals. We aim to bring our global expertise into the Indian infrastructure market and collaborate with various local authorities and organizations to bring projects to fruition.

How do you compare the Indian infrastructure sector to other countries – specially emerging ones – in terms of attractiveness for investments?
India is the second most populous country in the world with a population that is expected to grow from 1.3 billion to approximately 1.6 billion in 2050. During this period, India’s share of nominal global GDP is expected to more than double, providing attractive investment opportunities across sectors. Unlike many developing countries, India’s proportion of the population in the working age bracket is expected to increase over the next two decades, with India accounting for one third of the world’s working population by 2030. This coincides with a rapid increase in urbanization and we expect these two factors combined would significantly increase the demand for a wide range of essential and discretionary infrastructure services, particularly in urban areas. Historically, a large portion of the private sector equity required for infrastructure investment in India has been funded through the public markets. However, this funding source has declined over the past three years and developers as well as strategic infrastructure owners have begun to divest stakes in existing assets to deleverage balance sheets, making India an attractive destination for foreign capital.

In your opinion, what would be the turning point for Indian Infrastructure investments after the highs and lows the sector has faced?
We have seen a few trend emerging over the last few years, and believe that the sector will become more professionalized over the coming years: a tradable market for operating assets has emerged, on account of government policies, recycling of assets and increased number of completed projects; robust policies, especially on bankruptcy and dispute resolutions, have been enacted and should effect a transparent market; the largest players in many sectors are now international and are expected to remain so. For example, MIRA managed funds are one of the largest road operators in India. We expect that more sectors would go the way of roads and renewables and will attract more foreign capital.