Investors are keenly looking to pick up stake in projects worth Rs 24,500 crore of completed highways, with an average of six years of operational history, according to India Ratings and Research (Ind-Ra).

The agency notes that there has been a paradigm shift in the acquisitions – from developers to financial investors.

Ind-Ra believes that this is a positive shift and it will give impetus and provide opportunities for the opening up of businesses in the operations and maintenance vertical.

Deals that are yet to be sealed have a debt size of over Rs 16,400 crore. The activity pipeline has been abuzz in the last three years and Ind-Ra estimates that the highway sector has witnessed transactions of around Rs 11,100 crore in debt during February 2013-June 2016.

The list of sellers or potential sellers include HCC Concessions Ltd, NCC Infrastructure Ltd, Soma Enterprises Ltd, Reliance Infrastructure Ltd and GMR Infrastructure Ltd.

The Indian highway sector is witnessing an enhanced level of activity in the acquisition space, largely led by global marque funds and investors -- I Squared Capital, Brookfield Asset Management, PSP Investments and Macquarie’s India Infrastructure Fund, among others.

These international funds have picked up stake or are in advanced stages of acquisition of around 2,900 km length of national and state highway projects.

Similarly, domestic financial investors, IDFC India Infrastructure Fund and other infrastructure companies such as Tata Realty and Infrastructure Ltd have made a mark by showing an interest in deals of around 780 km of highways.

With Infrastructure Investment Trusts gaining traction, Ind-Ra believes highways as an asset class will further evolve and will set benchmarks.

Road projects worth over Rs 40,000 crore, spanning 3,600 km, have either been sold off in the last three years or are currently in the process of being divested. This recent increase in investor appetite could well be sustained, with reports doing the rounds that the government is working towards clearing the road to providing access for global sovereign wealth funds to invest in private highway projects.

The National Highways Authority of India’s 100 per cent exit policy, which was cleared in mid-2015 and road developers’ bid to deleverage their balance sheet, have both aided the momentum in the last year.

A study of the deals shows that of a total of 40 deals, including the ones in the pipeline, only five projects have been or are likely to be acquired by another corporate house, while institutional investors mostly account for the balance.

Barring one project, all the projects have an operational history of over six years, which could well be one of the reasons for investors evincing interest, since such projects reveal actual traffic potential.

National highways and toll road projects are the most in-demand projects; around 94 per cent of highway projects in the fray are national highway projects and around 87 per cent of the projects are toll-based projects, which normally have a higher potential of giving returns to the acquirer.

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