Five months after acquiring the infrastructure asset management business of IDFC Alternatives last July, Global Infrastructure Partners (GIP) kick-started the process of selling its roads platform, Highway Concessions One (HC1), in December. The move is reportedly a part of the US-based infrastructure fund manager's realignment process and it already has a few interested investors lined up.
Global pension funds Canada Pension Plan Investment Board (CPPIB), Caisse de depot et placement du Quebec (CDPQ), and National Investment and Infrastructure Fund (NIIF), are in independent talks to acquire HC1 for around $700 million, The Economic Times reported. "CPPIB, CDPQ and India's sovereign fund NIIF have submitted their initial term sheets and are currently carrying out due diligence," a source told the daily, adding that the portfolio's book value is pegged at $200 million.
According to the company website, HC1 currently manages seven roads assets - five toll roads and two annuity roads - across seven states. These are Ulundurpet Expressways in Tamil Nadu, Nirmal BOT in Telangana, Dewas Bhopal Corridor (Madhya Pradesh), Bangalore Elevated Tollway (Karnataka), Godhra Expressways (Gujarat), Jodhpur Pali Expressway in Rajasthan and Shillong Expressway (Meghalaya).
"Route length under management has grown at a phenomenal CAGR of 45% since the inception of the platform in 2014," the website stated, adding that the 472-km roads network fetched Rs 620 crore in revenues in the last fiscal.
HC1's non-road platforms include renewable energy, telecom towers and rail freight terminals. However, the buzz last month was that GIC intended to monetise the roads platform first since it was the most mature of the lot, and mandated investment bank Citigroup to scout for buyers for the same.
While infrastructure and traditional private equity funds typically shy away from projects with a long gestation period, like roads, recent initiatives by the government have helped build investor interest in the space. For instance, take the Hybrid Annuity Model for implementation of highway projects under which 40% the project cost is to be provided by the government while the remaining 60% will be paid by the government through annuity payments from the date the project is commissioned.
Besides, sources added that most of the IDFC portfolio is in better shape compared to most of the other road assets up for sale, hence, the interest is expected to be higher. Infrastructure funds typically invest in early-stage roads projects with higher execution risk, exiting as toll traffic picks up. They sell it to pension funds as its investors seek annuity returns for long tenures.
The growing investments in the roads sector, furthermore, come at a time of frenetic road construction activity. Over the last four years of the Modi government, road construction has picked up pace from 12 km a day in 2014-15 to almost 27 KM a day in the last fiscal. The target for FY19 was 45 km per day. Private equity (PE) investments in the roads sector had shot up to a decade high of $1,827 million by September 2018 according to the data from Venture Intelligence. The value per PE deal mushroomed a whopping 1235% since 2008, crossing $228 million in 2018.
The success of the asset monetisation exercise under the Toll Operate Transfer (ToT) model played a big part in this. The National Highways Authority of India's first auction of a bundle of projects last year fetched Rs 9,681 crore. The government reportedly hopes to raise Rs 2 lakh crore through the ToT model in five years, although the response for the second lot has been a lot less enthusiastic.
Edited by Sushmita Choudhury Agarwal