Bankers have hailed Friday’s’s debut domestic listing by an Indian infrastructure investment fund as a key moment in the South Asian nation’s quest to build a country fit the modern global economy.
IRB InvIT, owned by highway construction firm IRB Infrastructure Developers, kicked off its IPO on the Mumbai stock market on Wednesday, in which it aims to raise up to Rs46.5bn ($725m) from a mixture of institutional and wealthy retail investors. Books on the initial stock offering will close today (Friday, May 5.).
Investors and bankers said the IPO, underwritten by Credit Suisse, ICICI Securities, IDFC Bank and IIFL, was a defining moment in India’s long and often frustrating attempts to drive capital into much needed infrastructure projects.
A number of major investors, including Singapore sovereign wealth fund GIC Private Limited, are keen to commit capital to the stock sale, bankers said. “Five years from now, people will look back and say this was a seminal offering, because it allows developers to get on with the huge and pressing job of rebuilding India,” said one banker involved in the deal.
For local investors, the offering is a novel one. IRB InvIT, which is registered with India’s stock regulator Sebi as a trust, is comprised of six special purpose vehicles, each containing a single, operational toll road asset operating in five Indian states including Gujarat and Rajasthan. The hybrid financial product mirrors equity investments and generates debt-like fixed returns, and is commonplace in Southeast Asia, but has yet to be rolled out in Asia’s third largest economy
Yawning gap
However, there are risks inherent in the product. Unit holders bear the usual risks associated with infrastructure projects: revenues from toll roads typically suffer when inflation spikes and traffic flow slumps. While inflation is under control, India regularly suffers from long periods of uncontrollably rising prices.
If it is a hit, it is likely to presage a surge of interest, with other infrastructure investment funds set to tap the capital markets in the months ahead, led by GMR Group and Reliance Infrastructure. Finance minister Arun Jaitley said last year that India needed to generate more than $1.5tr in fresh capital over the next 10 years to bridge its yawning infrastructure gap.
The IPO comes at a time when interest in India’s capital markets is at a multi-year high. In recent weeks, the once-moribund market for Masala bonds — debt listed offshore that allow foreign institutions to buy rupee-denominated notes without needing to apply for licences or investment quotas — has enjoyed an unexpected and welcome revival. In late April, the National Highways Authority of India organised an eight-day roadshow that visited Singapore, Hong Kong, and London.