Tuesday November 19, 2019
Home Business How Important...

How Important is Infrastructure For Indian Economy And Expectations of Future Growth?

Over the past few years, the investor interest in accessing high-quality brownfield assets to deploy capital has been a natural first step taken by both large and small players entering the Indian markets.

0
//
infrastructure
Given the constrained balance sheets of many Indian businesses, especially infrastructure companies, has meant that carving out and monetisation of assets to reduce debt was a natural progression in the market. Pixabay

BY: TAPONEEL MUKHERJEE

Given the size of the Indian economy and expectations of future growth, infrastructure remains a crucial area of focus for both financial and strategic investors alike. As capital flow gradually picks up in the sector over the last five years and operational assets are bought out, the obvious question is: What next in terms of infrastructure projects?

The last few years have seen a significant focus from a plethora of global infrastructure investors in India, especially in the transportation and energy sectors. The primary strategy has been buying out companies or a portfolio of operational brownfield projects. Sellers of such projects have been motivated by the need to reduce their debt and in some cases carve out non-core assets. Buyers of brownfield assets have been motivated by getting access to assets that are operational, thereby giving them a foothold in the Indian market.

However, as brownfield assets see more capital pursuing them, we see two trends emerging. Firstly, high-quality brownfield assets for sale are fewer now, given the capital inflow over the last few years. Secondly, given the increased competition, from an investor’s perspective, due to the yield compression in brownfield assets, the returns available may not be commensurate to the underlying risk. Therefore, the need for investors to move beyond brownfield assets is one that needs attention.

Money
The capacity of investors and the strategies adopted to deal with non-brownfield projects will lead to increased infrastructure investments and will expedite infrastructure creation. Pixabay

For India, focused investors such as pension funds and private equity funds, the requirement to look beyond brownfield infrastructure assets was in the works for a while. Mainly, extending further out on the risk curve is required to deploy more capital to work. Beyond brownfield assets, investors must now consider assets that aren’t necessarily purely greenfield but are under-construction and close to completion.

The move towards under-construction projects will allow investors access to a larger pool of assets to choose from. Given the still strained balance sheets in the infrastructure sector, opportunities exist that need to be tapped into. The move towards assets that aren’t operational or a portfolio of such assets is a natural progression in the market.

The vital question is the valuation of such assets. Fundamentally, for distressed projects and under-construction projects, there is a potential for unlocking value by investors accessing such projects. Acquiring projects suffering from either time and cost overruns, or both for that matter, at attractive valuations is the key. The seller of such assets can unlock much-needed capital, and the users of such assets can hope to access the much-needed infrastructure sooner.

In effect, investors will have to be more “hands-on” with which to approach under-construction projects. The need for a more operationally intensive plan will require financial investors to team up with operator companies. Such partnerships will take a variety of forms ranging from joint ventures to the utilisation of financial vehicles that allow for partnerships between operators and capital providers.

For operational industry players such as integrated energy businesses, an opportunity exists wherein they can potentially utilise their operational expertise to get an edge in the infrastructure market.

The recent deal in which Hindustan Construction Company (HCC) monetised a pool of arbitration awards is a variant of this strategy, and a deal that displays how investors can unlock value through moving higher on the risk curve. In this particular case, HCC gets access to much-needed liquidity and the investors, the Blackrock-led consortium, get an opportunity to utilise their long-term capital to generate investment returns.

money
For India, focused investors such as pension funds and private equity funds, the requirement to look beyond brownfield infrastructure assets was in the works for a while. Pixabay

Over the past few years, the investor interest in accessing high-quality brownfield assets to deploy capital has been a natural first step taken by both large and small players entering the Indian markets. Given the constrained balance sheets of many Indian businesses, especially infrastructure companies, has meant that carving out and monetisation of assets to reduce debt was a natural progression in the market. However, in a multi-decade time horizon, given India’s vast infrastructure needs, a move higher on the risk curve towards under-construction projects to be able to deploy more significant amounts of capital is only natural.

Also Read: How Films And Politics March Hand in Hand?
From an investor perspective, accessing non-brownfield projects implies dealing with three primary issues around land acquisition, construction risk and an effective infrastructure-linked ecosystem. The immediate investment focus must shift towards projects or portfolios of projects where risk linked to the latter two must be undertaken, while land acquisition issues have primarily been resolved.

The capacity of investors and the strategies adopted to deal with non-brownfield projects will lead to increased infrastructure investments and will expedite infrastructure creation. Investors and the government will have to keep a keen eye on any policy changes that might be needed as the market evolves with increasing amounts of capital looking towards incomplete and yet attractive infrastructure assets. (IANS)

Next Story

Reasons For Bigger Houses In America

Here's why houses are getting bigger in America

0
Houses
Americans prefer houses that have big and open spaces in them. Pixabay

BY DORA MEKOUAR

Americans have long been drawn to big, open spaces, so perhaps it’s no surprise that houses built in the United States are among the most expansive on the planet.

And they keep getting bigger.

The size of the average house has more than doubled since the 1950s. In 2019, the average size of a new single-family home was 240 square meters (2,584 square feet), according to the National Association of Homebuilders.

Deeply held feelings about one’s home may be rooted in America’s homesteading, pioneering past.

“The appeal of the house for Americans, going back into the 20th century, was that it signified autonomy. You know, every home is a castle,” says Louis Hyman, an economic historian and assistant professor at Cornell University. “So, it has these echoes of signifying independence and achievement.”

The federal government has pushed the idea that a nation of homeowners is ideal.

The 1934 establishment of the Federal Housing Administration revolutionized home ownership. By creating the financial mortgaging system that Americans still use today, the FHA made home buying more accessible for millions of people. At the time, most Americans rented. Homeownership stood at 40% in 1934. By 2001, the figure had risen to 68%.

In the 1940s, President Franklin D. Roosevelt equated homeownership with citizenship, saying that a “nation of homeowners, of people who own a real share in their own land, is unconquerable.”

Today, the homeownership rate in the United States stands at around 65%.

Houses
The average newly built house is now twice as big as the average new home in 1945. Pixabay

The ability to invest in their homes has helped mask economic stagnation for many Americans. Although unemployment is near a record low, real wages — the number of goods and services that can be bought with money earned — haven’t budged in decades for U.S. workers.

“As Americans find that their wages are stagnating after the 1970s, they’re able to make money by investing in houses,” Hyman says. “The houses become a way for average Americans to get financial leverage, which can multiply their returns. There’s no other way for Americans to get access to financial leverage outside of houses. You can’t do it in the stock market if you’re just a normal person, and so this is a way to basically speculate in housing.”

For some Americans, owning a big home is a status symbol, physical proof that they’ve succeeded in life.

“This kind of classical example of the big suburban home has been a very powerful idea for many, many decades now,” says architectural historian William Richards. “People sometimes want specific rooms that have specific functions —a mud room; everybody gets their own bedroom; there’s no bunking up; a dedicated laundry room.”

And spacious houses are more financially attainable than they used to be.

Houses
For many Americans, a large home is not only a status symbol, but also an investment. Pixabay

“In the design and construction, there are greater efficiencies now for all sorts of reasons so that it’s less expensive to build a bigger house now,” Richards says.

But do bigger houses, sometimes called McMansions, make people happier? Not according to a recent paper that Clément Bellet, now an adjunct professor at INSEAD, a European business school, wrote as a postdoctoral fellow.

“Despite a major upscaling of single-family houses since 1980, house satisfaction has remained steady in American suburbs,” Bellet writes in the report.

Also Read- Usage of Anti-Inflammatory Drugs to Curb Symptoms of Depression, still Controversial

People living in larger houses, however, do tend to be more satisfied with their property, according to Bellet, but that satisfaction plunges when even more massive houses are built nearby. (VOA)