Reliance Infrastructure to Invest $7 Billion in Engineering and Construction Business

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Researched by Industrial Info Resources (Sugar Land, Texas)--Reliance Infrastructure Limited (BSE:500390) (Mumbai, Maharashtra), a company controlled by the Reliance Anil Dhirubhai Ambani Group, has tied up with China Metallurgical Group Corporation (Beijing) in a bid to enter into the business of steel mill construction and thereby expand its engineering and construction business in India. The special-purpose vehicle formed by the companies will bid for engineering, procurement and construction (EPC) contracts to set up steel plants in India. While Reliance will bring project-management expertise to the venture, China Metallurgical will provide the technology required to set up essential units, such as coke ovens and blast furnaces.

Reliance Infrastructure plans to invest about $7 billion over the next three years to ramp up its engineering and construction business. About 80% of the funds will be borrowed. The company currently has an EPC order book worth more than $4 billion. The company constructs roads, flyovers, highways, airports, urban transportation systems and power plants. Plans over the next seven years include an investment of more than $3 billion that will be spent on setting up nine infrastructure projects, which include five road projects worth about $624 million and two metro rail projects in Delhi and Mumbai worth more than $985 million. Two of the road projects are slated to be complete this year.

Reliance Infrastructure intends to enter into the business of constructing nuclear power plants, as well. Chairman and Managing Director Anil Ambani announced that the company will initially focus on opportunities in India. It has formed a nuclear power initiative group and brought in V.K. Chaturvedi, former chairman of the Nuclear Power Corporation of India (NPCIL) (Mumbai, Maharashtra), to head it. The group has already begun exploring possibilities of forming joint ventures with nuclear reactor builders such as NPCIL, General Electric (NYSE:GE) (Fairfield, Connecticut) and Atomstroyexport (Moscow, Russia). No tie-ups have been finalized so far.

In December 2007, the Indian government announced that it would invest $500 billion in infrastructure projects over the country's Eleventh Five-Year Plan (2007-12). This will more than double the country's infrastructure spending from 5% of the GDP to 9% of the GDP by 2012. At least 30% of the investment amount is expected to be raised through the private sector, including global financial markets. Large infrastructure projects would naturally translate into multiple downstream opportunities for sectors such as steel, cement and construction equipment.

Considering the huge fund requirements and the prevailing borrowing crunch in the domestic market, the Indian government has decided to increase the external borrowing limit for infrastructure companies from $100 million to $500 million. Companies in the infrastructure sector that are working toward solving India's massive infrastructure problems can now borrow up to $500 million from sources overseas. During a recent visit to the oil-rich Gulf countries, Indian Prime Minister Manmohan Singh invited the governments of the Gulf countries to invest in India's infrastructure sector and enhance the bilateral relations between the nations.

Reliance Infrastructure, earlier known as Reliance Energy, has so far completed EPC contracts for 8,000 megawatts (MW) of power generation. Since the transformation of the company in May 2008, the focus has shifted from energy alone to cover the entire infrastructure sector. In June 2008, it was awarded an EPC contract worth $2.4 billion for the 4,000-MW Sasan ultra-mega-power project (UMPP). The UMPP is being developed by a group company, Reliance Power Limited (BSE:532939) (Mumbai), in Sasan, Gujarat. Reliance Infrastructure will also augment its extra-high-voltage transmission network in Mumbai with an investment of about $361 million. Also under way are two projects under the Western Region System Strengthening Scheme-II on a build-operate-transfer basis.

The company recently joined hands with Shanghai Electric Group Company Limited (HKG:2727) (Hong Kong) to set up manufacturing facilities for power generation. The venture will target both the domestic market as well as the overseas markets of western Asia, southeastern Asia and Africa.

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