Article by Sonny Lulla of Infrastructure India
Sonny Lulla of Infrastructure India plc discusses the
company's experiences investing in infrastructure businesses in
In March 2011, Guggenheim Global Infrastructure Company (GGIC)
sold its two Indian infrastructure investments to Infrastructure
India plc (IIP) in return for share consideration. The co-founders
of GGIC were appointed to IIP's board, while an affiliate was
Rationale for the deal
The rationale for the transaction was relatively
straightforward: a lack of diversified, well-managed, UK-listed,
actively traded equities were preventing public market investors
from accessing India's burgeoning infrastructure industry. IIP
was originally envisioned as one such company, but unfavourable
market conditions meant it needed a catalyst to help get it there.
The addition of the GGIC-owned businesses, coupled with the
strength of IIP's investment pipeline in India, provided just
Since March, IIP has made an offer for and acquired Indian
Energy Limited (IEL), an AIM listed developer and operator of wind
energy projects in India. It has increased the size of IIP's
investment in the Shree Maheshwar 400 megawatt hydropower project
at accretive returns to IIP shareholders and it has also
consolidated full ownership of Vikram Logistic & Maritime
Services (VLMS) into IIP. IIP now has investments in three strong
projects in India and additional outright ownership of two scalable
businesses in attractive sub-sectors of infrastructure, namely
renewables (IEL) and transportation and logistics (VLMS).
Investing in infrastructure businesses should be approached as
much from the vantage point of developer as investor, as there is
significant value to be created in disciplined project development.
One of the challenges faced by investors in India is finding
reasonably priced transactions with reliable project partners.
Outright ownership of IEL and VLMS means IIP can deploy significant
capital into businesses that it controls (and whose management the
company appoints) to develop projects and earn attractive returns
for investors at the base cost of the asset, not at a large
premium. VLMS's recently announced acquisition of Freightstar
is one example of this strategy at work.
IIP is also positioned to invest opportunistically (and
disinvest) smaller stakes in other infrastructure businesses that
meet its investment criteria. Those criteria focus us on basic,
hard-asset, project-financeable businesses which we understand. In
our view, IIP's businesses have a sustainable advantage (and
corresponding returns) coming from regulation, concession,
location, monopoly position and contract.
Given the work IIP has done to date, the company seems well
positioned to raise and deploy additional capital, giving it the
scale it needs to achieve what we intended back in March.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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