Tata Realty in talks for buying SBI-Macquarie’s road assets

Industry: Banking, Realty 2016-08-16

MUMBAI: Tata Realty & Infrastructure is in advanced talks with a private equity fund managed by Australia’s Macquarie Group and State Bank of IndiaBSE 0.41 % to buy two road assets, more than doubling its investment in three years, said two people with direct knowledge of the plan.

SBI-Macquarie Infrastructure is looking to sell road assets it purchased in 2013. These including the Farukhnagar-Jadcherla highway in Andhra Pradesh and Trichy Tollways, a portion of National Highway 45 that connect Chennai and Trichy.

The infrastructure fund of Indian and Australian banks is expecting a total enterprise valuation of Rs 1,000-1,200 crore. The deal is expected to be concluded in a few weeks, people quoted above said. “As part of the transaction, SBI-Macquarie will sell its stake in both projects, while existing minority owners are expected to continue with their holding,” said one of the two persons said. Both Macquarie and the Tatas did not reply to an email seeking comments till press time.

If successful, the fund will make more than two-fold return or a 30% internal rate of return from these investments, which would be one of the highest returns in infrastructure — a sector often hobbled by bureaucratic hurdles, project unviability and a paucity of funds. Macquarie fund bought Trichy Tollways for about Rs 275 crore and the Farukhnagar-Jadcherla stretch for Rs 200 crore.

Tata Realty in talks for buying SBI-Macquarie’s road assets

The fund holds 74% each in both. In Farukhnagar-Jadcherla highway, bought from GMR InfrastructureBSE -2.13 % in 2013, the Bangalore-based developer owns the rest of the stake. Trichy Tolls was a joint venture project between Malaysia’s IJM Corp and Shapoorji Pallonji group. SBI-Macquarie currently owns 74% while Shapoorji holds 26%.

In 2009, Macquarie-SBI raised its first fund of $1.1 billion to invest in Indian infrastructure space. Its investments include a $200 million bet in GMR’s airport holding company, another Rs 1,400 crore investment in Viom Network, from which it recently made a partial exit after Viom was bought out by American Tower Co.

Meanwhile, Tata Realty & Infrastructure, an alternate investment arm of the diversified Tata Group, is aggregating infrastructure presence with a portfolio of road assets. It bought out three road projects in Tamil Nadu from IVRCLBSE -3.19 % in 2013 and a year later acquired Agra-Jaipur expressway project from Madhucon ProjectsBSE -0.51 %.

Tata Realty manages an offshore fund of $1billion and is a wholly owned unit of the salt-to-steel conglomerate. The fund invests in real estate and infrastructure. ”The value of roadways and bridge infrastructure in India is expected to grow at 17.4% CAGR until 2017, to reach $10 billion,” global consultant KPMG said in a study on India Infrastructure released on February 16.

“A significant rise in new investment options, particularly in many projects under phase III (approximately 9,100 km and worth $19.41billion) of the National Highway Development Programme (NHDP), expected to be awarded on a build operate and transfer basis.” With up to 100% FDI under the automatic route for support services to road transport, it would create a better environment for financial investors, the report added.