Gulf funds could reap rewards of Indian infrastructure crunch

A large number of Indian infrastructure project developers and promoters are expected to rush to international markets including the Gulf region to tie-up long-term funds to finance their upcoming projects, according to industry players and market experts.
The move comes in the wake of an expected liquidity crunch in the short-term, coupled with a possible further regulatory tightening in the Indian financial sector, following the repayment crisis in IL&FS (Infrastructure Leasing & Financial Services), the leading infrastructure financing institution here.
This could be a big opportunity for equity funds and lending institutions in the UAE and Middle East, analysts say.
“With the unfolding saga at IL&FS, uncertainty in the stock market and the continued downward spiral in the Rupee exchange rate against the US Dollar, plans of several infrastructure groups to hit the stock market with their IPOs (Initial Public Offerings) have gone haywire. These promoter companies will now be forced to tap the overseas markets to tie-up funds for their new projects or expansion plans,” said Kameswara Rao, partner, Energy & Infrastructure at PwC India, told Arabian Business in an interview.
Infrastructure projects, mainly in the renewable energy, airports and road and highway sectors are the ones which are expected to approach long-term investors from the Middle East and other overseas markets for financing of their new and expansion projects.
“There is already talk of several project developers in sectors such as renewable energy and road and highway construction sectors, scouting for overseas investors to tie-up both long-term debt as also equity,” an infrastructure sector analyst at a leading investment bank said. He sought anonymity as his firm is involved in negotiations by some of these companies.
Market players said that with the government aggressively continuing with its bidding process for several projects in the renewable energy and airport sectors, there will be a scramble among the bidding companies to ensure finances upfront for the projects if they succeed in their bids.
These are the companies which are now hurrying their plans to look for long-term investors in the overseas markets.
The Government of India last week averted a major crash in the domestic financial sector and stock market by moving swiftly to supersede the board of the debt-ridden IL&FS by appointing a six-member expert committee comprising of eminent bankers and administrators.
“In the wake of the developments in IL&FS, greater regulatory control is expected in the financial sector, especially in the NBFC sector, with the freedom of lending by NBFCs getting curtailed to some extent,” said Ashok Jha, former Finance Secretary, Government of India, who is currently an independent director on the boards of some of the private sector companies.
The Indian Government had to step in the wake of a string of repayment defaults by IL&FS and some of its subsidiaries in the recent weeks, creating a near panic in the banking sector and markets, leading to both Sensex and Nifty, the flagship indexes of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) plunging hundreds of points in consecutive sessions.
The total outstanding liability of IL&FS and its subsidiaries are estimated to be about $23 billion.
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