This document discusses equity financing for infrastructure projects in India. It notes that equity financing makes up only 6% of total infrastructure financing. Various sources of equity are discussed, including promoter equity, private equity funds, and tiered equity structures using special purpose vehicles. Recommendations are made to increase equity funding, such as liberalizing buyback regulations and improving foreign institutional investor participation. Issues facing infrastructure holding companies in accessing financing are also outlined.

1. EQUITY MARKET IN
INFRASTRUCTURE FINANCING
AASHISH DOSHI ( 10BM6002)
AMIT BHATIA (10BM6005)
ANURADHA CHAKRABORTY (10BM60014)
MAYANK MOHAN (10BM60048)
PALLAV MAHESHWARI( 10BM60057)

2. INFRASTRUCTURE
WHAT IS INFRASTRUCTURE?
Infrastructure is the basic physical and
organizational structures and facilities
(e.g., buildings, roads, and power supplies) needed
for the operation of a society or enterprise
Over the years Infrastructure has been defined in
India in the many ways as given in following Table

3. COMPARATIVE
DEFINITION OF
INFRASTRUCTU
RE

5. Distribution of Investment in Public and
Private Funding in Various Sectors

6. Distribution of Investment as Equity and
Debt

7. EQUITY MARKET
 The market in which shares are issued and traded, either through
exchanges or over-the-counter markets. Also known as the stock
market, it is one of the most vital areas of a market economy because it
gives companies access to capital and investors a slice of ownership in a
company with the potential to realize gains based on its future
performance
 This market can be split into two main sectors: the primary and
secondary market
 Financing of Infrastructure through equity is done through Promoter
Equity and Tiered Equity which includes Private and Mezz Equity.
In the figure we
see that Equity
Financing
constitutes 6%
of total financing
in the 11th Five-
Year-Plan, for
the first 3 years.

8. Promoter Equity
 To infuse equity funding, Promoters have
traditionally
 Used internal cash accruals
 Raised equity through IPO listings where promoters
have sought super normal valuations
 Equity Infusion in Infra Sectors – Equity
Infusion in Indian Infrastructure sectors has been
a function of the level of maturity of the sector i.e.
Indian Highway Sector has seen Equity infusion
of USD 4 – 4.5 bn
 Power and Roads have seen higher levels of equity
investments as compared to other Infrastructure
sectors

9. Table : Project level return expectation
in various sectors in infrastructure
Infrastructure Sector Equity Returns
Road Sector 14 – 18%
Power Sector PPA / Merchant Power 16 – 18%/ 30 - 35%
Port Sector 15 – 18%
Railway Sector N.A
Airport Sector 19 – 24%

10. Road Equity requirement as per BKC
16
14
12
10
8
6
4
2
0
Market Cap of Estimated Equity
leading Infrastructure Requirement
companies
Table 4: Market Cap as on 2nd March from Bloomberg for IRB, Gammon
Infra, HCC, IVRCL, NCC, Sadbhav, Era Infra, Madhucon Projects, Gayatri Projects, Unity
Infra, L&T, GMR Infra, JP Power, Lanco Infratech, Reliance Power & Tata Power

11. Private Equity
 Over the last five years, PE funds have invested
approximately US$13 billion, equivalent to one-
fourth of the total capital flows to India, into the
infrastructure sector. Since 2006, annual PE
investment in infrastructure has grown
fourfold, from about US$1 billion to US$4 billion in
2010, when it rebounded to 2007 levels. Apart
from a brief slowdown in 2009, average deal size
has also increased—yet another indicator of
growing PE interest in the sector.

13. Special Purpose Vehicle
Because most infrastructure projects are
developed by construction companies, they are
typically structured as multi-tiered entities, each
organised as a unique SPV. The SPVs are
typically owned by a sector level holding
company, which, in turn, is owned by the primary
developer. The SPV structure, which is also
mandated by regulation in most sectors, ensures
better risk management, as well as greater
control for the project sponsor.

15. PRIVATE EQUITY FINANCING
OPTIONS: MULTIPLE LEVELS
Lately several private equity financing options
have become available to Indian
developers at multiple levels:
 Investment at Parent Company Level
 Deal Size: USD 75mn – USD 150mn
 Sectors: Construction Companies / Construction
Subsidiaries of Holding Companies (Post
restructuring)
 Exit - Through IPO
 Investment at Holding Company level
 Deal Size: USD 50mn – USD 100 mn.
 Sectors: Road/Power/Port Holding Companies
 Exit: Through IPO
 Investment at Asset level
 Deal Size: depends on project size ( Typically
around $ 25 mn, can go upto $ 100 mn )
 Sectors: Power Greenfield Assets, Road SPVs,
Minor Ports

16. RECOMMENDATIONS TO INCREASE
EQUITY FUNDING
 Liberalizing buyback regulations
 Change in initial bidders
 Venture or Private Equity funds as bidding partners
 Steps for improving FII participation
 Separate treatment for infrastructure holding
companies
 Problems faced by such holding companies are
 Compliance with stringent regulatory requirements
applicable to regular lending NBFCs
 Limits on bank borrowing by these companies
 ECBs not allowed under the automatic route
 FDI investment in these companies not allowed without
RBI approval
 Investment in these companies by registered venture
capital funds is subject to regulatory approval