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Tata, Actis to roll out $2 bn JV for road projects

Salt-to-steel conglomerate Tata Group is forming a joint venture with private equity investor Actis that could spend $2 billion (about Rs 8,900 crore) in building roads over five years, as Indian and foreign investors seek to cash in on opportunities created by the governments attempt to upgrade the countrys network of highways, the third largest after the US and China.

Tata Realty & Infrastructure, a company set up by the Tata group to foray into the roads and highways sector, will own 65% of the venture, called TRIL Roads Pvt Ltd. Actis will own the rest, Tata Realty managing director & CEO Sanjay Ubale told ET.

Actis will pay $77.5 million, or Rs 345 crore, to buy the stake in TRIL Roads in its first investment in the Indian infrastructure sector, said its partner Michael Till.

Actis, which manages a $750-million (Rs 3,333 crore) infrastructure fund, is planning to invest at least 30% of this in India over the next three years, he said.

Tata Realty will invest $122.5 million (Rs 544 crore) in the JV from internal accruals. The company has equity of Rs 900 crore and real estate assets of Rs 600 crore, said Mr Ubale, a former civil servant. E&Y who advised the Tatas on the deal.

Italys biggest toll operator Atlantia, which is a technical partner of Tata Realty, has agreed to invest $200 million to pick up a stake in special purpose vehicles to be floated for setting up the projects, said Mr Ubale.

The combined $400-million investment planned by Tata Realty, Actis and Atlantia will help them attract at least $300 million as viability funding from the government. The remaining $1.3 billion, of the planned $2-billion investment, will be borrowed from financial institutions.

Viability gap funding is the money put in by the state to close the gap between the cost of an infrastructure project and the money private investors are willing to spend.

Typically, the private investor seeking the lowest viability gap funding wins the contract to execute a project under the public-private partnership, or PPP, route. The Tata-led joint venture intends to build at least five road projects with a minimum length of 500 km each in the next few years.

The government is trying to build new roads and highways as it seeks to compete with China, the worlds fastest-growing economy. The ministry of highways signed 44 contracts to build 3,843 km of roads in the past two years with an investment of Rs 40,600 crore.

In the current fiscal, it plans to award 86 projects involving an investment of Rs 90,000 crore to build 92,000 km of roads. India has a national highway network of just under 71,000 km and a total road network of 3 million km, though much of this is in poor shape.

A recent McKinsey report said India needs to invest around Rs 53,00,000 crore in urban infrastructure in the next 20 years and it can raise up to $12 billion (Rs 53,334 crore) by leveraging the private sector and the debt market.

The Tata-Actis-Atlantia trio will have tremendous funding power, said the partner of an advisory firm who did not wish to be named. They can pull in more funds, if needed.

Actis was spun off from the Commonwealth Development Corporation six years ago. In the past 10 years, it has raised $7.3 billion and invested $4.8 billion in businesses in emerging markets. It invests in infrastructure in Africa, Latin America and South and South East Asia with a focus on power, roads, ports and airports.

Atlantia is Italys largest private investor in infrastructure with over euro18 billion investment. It recorded turnover of euro3.6 billion in 2009 and had a market capitalisation of euro10.4 billion on December 31, 2009.

Source: Web Newswire

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