IIP.L Regulatory News (IIP)

15 Aug 2008 07:00



Date: 15 August 2008

On behalf of: Infrastructure India plc ("Infrastructure India" or "the Company")

Embargoed until: 0700hrs

Infrastructure India plc 

Second Acquisition: Equity interest in Toll Road Central India

Shares in Infrastructure India plc (LSE: IIP - Ordinary Shares, IIPW - Warrants), a closed-ended investment company providing direct access to India's fast-growing market for infrastructure assets, commenced trading on the Main Market of the London Stock Exchange on 30th June 2008. The Company today announces its second acquisition, which is its first investment in India's transportation sector.

Acquisition of 26% equity interest for consideration of £11.9 million (STG equivalent of Rs.960m) in a 125km Toll Road in Central India (the "Acquisition").

The Board of Infrastructure India is pleased to announce the Acquisition, subject to usual completion conditions, of a 26% shareholding in a toll road in Central India. This project is part of the local State Government sponsored road upgrade programme. It is a single 125 km four-lane divided carriageway toll road that is currently five months into construction, with tolling operations anticipated to commence in late March/April 2010.

The acquisition follows completion of the Company's IPO on the Main Market of the London Stock Exchange on 30th June 2008 and the purchase of an equity interest in Shree Maheshwar Hydel Power Corporation Limited (the "Shree Maheshwar Project"), a 400MW hydroelectric power project situated in Madhya Pradesh. Together these two investments account for approximately £24.9 million of deployed capital, representing a substantial proportion of the net proceeds raised at the time of the recent IPO.

Energy and transportation represent core sectors for Infrastructure India and the Acquisition is consistent with the Company's stated objective of securing as many projects as possible that are expected to commence planned commercial operations within 18 months of the Company's investment.

The Acquisition also begins a sector diversification for the Company and further reflects the Company's broadening industrial and commercial relations within India's business and infrastructure communities. The Company's principal partner for the acquisition is a subsidiary of the Essel Group, a leading Indian entity with group turnover of approximately US$ 2.1 billion in 2007 and activities spanning infrastructure, media, packaging, entertainment, technology and education.

This Acquisition demonstrates the Company's ability to source projects that meet its investment criteria and reflects the strength of its operations on the ground in India. It is the Company's intention to continue to make acquisitions in conjunction with blue chip partners. 

  Commenting upon the Acquisition and the Company's rapidly developing pipeline of new infrastructure investment opportunities the Chairman, Rupert Cottrell, said:

"The Board is very pleased to be able to announce the signing of the acquisition of our investment in this toll road. From an anticipated financial perspective, in terms of the quality of our partner and the sector diversification, we believe it represents a very attractive investment. 

"It also demonstrates the ability of Bloomsbury Asset Management Advisors, the Company's Investment Adviser, to be able to identify and recommend high quality, relevant transactions."

At the time of IPO, the Company indicated the existence of a strong pipeline of potential investments including an option for further investment in connection with the Shree Maheshwar Project which remains open to the Company. The scale of that pipeline has now developed significantly in the short period since IPO and includes a broad range of potential new transactions across the country with some of India's leading road construction companies as well as other transportation projects and a number of energy projects.

As a consequence, and as anticipated at the time of IPO, the Company is now considering the options available to enhance its capital base in order to take advantage of these opportunities.

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Enquiries:

Notes to Editors:

Market opportunity

India was in the top 10% of countries for GDP growth in 2007, however, it is generally acknowledged that India's GDP growth rate has been constrained by its lack of infrastructure.

The Indian Government's 11th five year plan (2007-2012) has set the GDP growth target for this period at 9% per annum. The Government has recognised that in order to support such growth, large scale investment is required in the country's infrastructure. 

If the ambitious GDP growth targets are to be achieved, investment of US$488bn (approximately £249bn) in infrastructure will be required, which will only be possible if there is a substantial expansion in private sector contribution. The share of private sector participation in total infrastructure investment is expected to be around 30%.

If these initiatives succeed, India will deliver a large programme of PPP, even by international standards.

The Directors believe that the relative underdevelopment of the Indian debt and equity markets, coupled with the significant domestic infrastructure investment programme, will lead to project developers needing to recycle equity. In other markets, this set of circumstances led to a secondary market for infrastructure assets; it is the start of this secondary market which the Company will seek to take advantage of. 

Should the emerging Indian infrastructure market develop in a similar way to other markets, the Directors believe that project equity returns could be expected to increase as the sector matures. 

Team with proven experience

The Directors and the team of professionals at BAMA, the Investment Adviser, have extensive experience in infrastructure fund management and a strong track record of value creation.

Their extensive experience was gained primarily at John Laing plc - one of the largest publicly quoted infrastructure investors in the UK at the time - and The PFI Infrastructure Company plc.

Full biographies are included in the appendix.

Well-established local partners

BAMA will subcontract some services including aspects of origination and management services to Cornerstone, a subsidiary of Bridge Capital Realty Pte. Ltd (Singapore) ("BCR").

BCR is an independent financial services firm in India focused on infrastructure asset management. It has a network of contacts across the country and an established track record of deploying capital in India for large international investors in the sector.

Investment objective

The objective is ultimately to achieve an aggregate IRR of up to 25% per annum.

The Company will seek to invest in assets that are expected to generate a base IRR of 15% per annum.

It is the Directors' belief that the Group's returns could be raised to the 25% target due to additional potential gains from refinancing, yield compression effects and portfolio management efficiencies, as has been achieved by other listed infrastructure companies.

Dividend Policy

The objective of the Company is to provide shareholders with an attractive total return from their investment in the Company. The infrastructure projects into which the Company invests should in the view of the Directors and following the commencement of stable operations generate predictable and long term cashflows from which the Directors intend to recommend the payment of regular interim and final dividends in respect of the six months to 30 September and 31 March.

Corporate Social Responsibility

The Group will ordinarily make investments in infrastructure projects that seek to make a contribution to the development of communities in which they are located.