Dipak Kumar Dash,TNN
NEW DELHI: Many highway developers, including GMR and GVK, are set to get major relief in next one week as the PM-appointed C Rangarajan committee is likely to recommend reduction and deferment of premium to be paid to NHAI.
The panel is likely to suggest that for six-laning of highway projects, at least 25% reduction in annual premium payment to NHAI during construction period and about 50% during subsequent years. The panel was constituted to come out with a formula to defer the premium payment towards later part of the concession period to make projects viable for developers.
In case of four-laning of projects, the developers don’t have to pay premium during the construction period. During operation and maintenance period, they have to pay minimum 50% of the committed annual premium.
Premium is the annual upfront revenue that the developers have promised to pay to NHAI, while bagging the projects. The promised premium of around Rs 1 lakh crore will come to NHAI in the next 20-30 years, according to the road ministry. While the developers will pay lower amount in the initial years, they have to pay higher amount in the later part of the period to fulfill the commitment.
For both six-laning and four-laning of highway projects, during operation and maintenance period, annual cash flow surplus subsequent to fulfilling debt servicing and other obligations, will have to be used mostly towards premium payment. The objective is to ensure that NHAI gets the entire premium at least three years before the contract period ends, said a source.
Developers were complaining about difficulties in premium payment due to slowdown in traffic amid a weak economy. Many projects, which were awarded could not take off, while many on-going projects were getting stuck. The committee felt that a reduction and deferment of premium payment in the initial period and increasing the amount in the later, when both traffic growth and collection of toll are expected to go up, will help the developers.
Shubhra Tandon | Mumbai |
GMR Highways, part of the Bangalore-based GMR Group, has sold a majority stake of 74% in its Tamil Nadu toll road asset —GMR Ulundurpet Expressways (GUEL) — for around R222 crore to IDFC Alternatives’ India Infrastructure Fund 1 (IIF1).IDFC Alternatives is the alternate asset management vertical at IDFC. GUEL operates the highway stretch of 73 km from Tindivanam to Ulundurpet on National Highway 45 in Tamil Nadu. The project commenced commercial operations in July 2009.
SUMMARY-GMR Highways, part of the Bangalore-based GMR Group, has sold a majority stake of 74% in its Tamil Nadu toll road asset
GUEL, along with three other road assets of the company, was on the block for the last six months, and GMR was understood to have been engaged with a host of Indian and foreign investors for the stake sale.
The other three assets up for sale are understood to be an annuity project Adloor Yella-Reddy-Gundla Pochanpalli in Andhra Pradesh, and BOT toll assets of Hyderabad-Vijaywada and Hungund-Hospet.
According to market sources, SBI Macquarie and Morgan Stanley had also looked at these assets for a possible stake purchase. At present, sources say IDFC is in discussions with GMR for other road assets as well. However, IDFC Alternatives managing partner and CEO MK Sinha did not comment on the same.
While GMR and IDFC refused to comment on the valuations for GUEL, market sources say the company would have received about 5% premium on the book value. The originally R800-crore Ulundurpet project saw a cost escalation of about R90 crore during construction, taking the project cost close to R890 crore, say sources.
GMR’s equity investment in the project is close to R291 crore, and the project has a term loan of about R596 crore, the source said. “The toll collected on the project is about R203 crore in the 2011-2012 fiscal,” he said.
GUEL is the second divestment in GMR’s roads portfolio. In February, GMR Highways divested 74% stake in Farukhnagar-Jadcherla highway in Andhra Pradesh to SBI Macquarie Infrastructure Investments and SBI Macquarie Infrastructure Trust for R206 crore.
GMR Group CFO Madhu Terdal said the divestment was in line with GMR Group’s ‘Asset Right and Asset Light Strategy’ and will reduce debt by about R459 crore as on August 31, 2013, on a fully consolidated basis.
Sinha of IDFC Alternatives said, “This investment is our first major acquisition and a step in the direction of implementing our road sector strategy. Given the uncertainty and delays in implementing under construction projects, we will continue our focus on acquisition of operating road assets.”
Analysts say the deal brings in a much-needed breather to GMR, which is saddled with a debt of over R33,000 crore.
“While this deal will help GMR Group to de-leverage and free up capital to be invested in other projects under development, infrastructure focused funds institutions get opportunity to refinance such assets and further enhance their returns on the invested equity,” Centrum Capital head (infra solutions group) Sandeep Upadhyay said.
IIF1 closed in June 2009 with a fund size of $927 million from Indian and international institutional investors. As of June, IIF1 had invested 84% of its total capital across 15 portfolio companies and R250-300 crore is still left in the fund, said Sinha. IIF has investments in over 1,878 lane km of roads in India.
By Trushna Udgirkar
Company to slash debt by `459 crore following disinvestment
Infrastructure group GMR has decided to sell majority stake in one of its road projects named GMR Ulundurpet Expressways for a consideration of Rs 222 crore. The buyer- India Infrastructure Fund would then get to hold a 74 per cent stake in this project.This is their second such divestment in the roads portfolio and “in line with the asset right and asset light” strategy of the group, it said.
Divestment of this asset will help the company slash debt by about Rs 459 crore as on end of August this year on a fully consolidated basis, in addition to infusing equity funds of Rs 222 crore.
“This transaction signifies GMR Group’s ability to successfully implement its asset-light-asset-right strategy under challenging market conditions. We at GMR Group, continue to focus on creating liquidity and reducing our leveraged position as part of the strategy of churning of assets. The GMR Group will continue to focus in adopting this approach in other businesses as well,” said Madhu Terdal, group CFO, GMR Group.
The highway project operates the stretch between Tindivanam to Ulundurpet on National Highway 45 in Tamil Nadu, counting 73 km. Its commercial operations had begun in 2009.
“This investment is our first major acquisition and a step in the direction of implementing our road sector strategy of acquiring control of operational projects with proven traffic history. Given the uncertainty and delays in implementing under construction projects, we will continue our focus on acquisition of operating road assets,” said MK Sinham, managing partner and CEO of IDFC Alternatives. IIF is a fund managed by IDFC Alternatives.
Infrastructure focused fund IIF has a portfolio with existing investments in roads, ports, conventional and cleantech energy assets. Their investments span across entities that operate in the aggregate, over 1,878 km of roads in India and the fund further hopes to expand its road portfolio.
NEW DELHI: The Road Transport Ministry will approach the Committee of Secretaries for an amicable way out for the Kishangarh-Ahmedabad Highway project which is stalled after GMR’s exit.GMR Infrastructure BSE 0.50 % early this year had walked out of the project citing difficulties in taking up the project due to regulatory hurdles, including delays in environment clearance and land acquisition.
According to sources, GMR Infrastructure was ready to restart the project with some preconditions, including making piece-meal payments.
The Law Ministry, however, had already rejected the developer’s preconditions, including piece-meal payments, for resuming work on the project.
“We are going to the Committee of Secretaries (CoS) on the matter,” Road Secretary Vijar Chibber told reporters here. He said the meeting of CoS may take place in the next 10-15 days. The CoS is headed by Cabinet Secretary Ajit Kumar Seth.
The company has also said it would pay about 50 per cent of the amount to restart the work on project at present and pay the remaining sum including interest in subsequent years.
The Ministry and the company are already in discussions to rescue the project.
Sources added that the proposal from the Ministry is to ask the company to make requisite payments in time and to seek its guarantee to ensure that the project is not abandoned mid-way, leading to financial burden falling on government.
The project is estimated to have required an investment of Rs 5,387 crore. The Bangalore-based group had won the project in western India through international competitive bidding in September 2011 at Rs 636 crore annual premium for 26 years.
NHAI had said that the company exited the project on account of financial hurdles in arranging finance for the project and not due to lack of regulatory clearances.
It is to be implemented through the Public Private Partnership (PPP) model on Design, Build, Finance, Operate and Transfer basis.
Despite doing whatever was required, the permissions were not granted and this forced us to serve a termination notice under terms of the contract
he GMR Group
has walked out of the Kishangarh-Udaipur-Ahmedabad National Highway project 16 months after it won the project in a bid, reports CNBC-TV18. GMR had promised to pay the National Highways Authority Of India over Rs 9,000 crore on a net present value basis. The group says that it exited the project after waiting far too long for the grant of critical permissions.
According to Arun Bhagat, EVP and group head – corporate communications, GMR Group, “This is a 555 km-long, 4-6 laning of the Kishangarh- Udaipur- Ahmedabad stretch.”
“We were awarded this in September 2011. At the end of about 16 months since the award of contract, certain critical permissions that were applied for were yet to be granted,” he clarified.
“Despite doing whatever was required, the permissions were not granted and this forced us to serve a termination notice under terms of the contract.”Source: moneycontrol.com
There is good news for highway developers such as L&T, Reliance and GMR with the National Highways Authority of India (NHAI) formulating a plan to speed up the exit of contractors, who take up projects under the build-operate-transfer (BOT) route.
The move follows a virtual standstill in the award of new contracts as developers are strained for equity and are unable to raise fresh resources to take up new road stretches. Apart from a weak equity markets preventing public offers, such as those by IL&FS Transportation Networks a few years ago, even private equity funding has dried up in recent months because of the global economic environment and the resultant slowdown in India.
Since 2009, the rules allow developers to exit two years after a project is completed. Developers of around a 100 projects, which run into thousands of crores, do not have this option for projects bagged before 2009.
The new plan is to permit exit immediately after construction is completed in all BOT projects, helping developers unlock value from these projects where cash flow has begun. Last month, the NHAI board decided to amend the rules but a final decision will be taken by an inter-ministerial group.
NHAI feels once they are also allowed to 100% divestment of their stake in the already completed projects, these companies will have more equity available with them. As they exit from the project, firms of similar net worth specializing in operation and maintenance would take over the project for rest of the concession period.
Officials said several international majors such as Macquarie and Morgan Stanley have evinced interest in running projects after taking them over from the developer. In addition, NHAI has sounded out Indian banks to scout for other potential investors, although the sale needs to be approved by the highway authority. The developers are, of course, cheering the move. “Why should companies be made to stick to a project for 15-20 years when they can take up new projects? Allowing them to exit from completed projects will improve investment scenario,” O B Raju, managing director (highways) of GMR said.
Raising the concern of private equity drying up, Singh in his letter has said shares of many highway developer companies those case out with IPOs four-five years back are going to the market at “steep discounts.”
The consortium of GMR Infrastructure (Q,N,C,F) and Oriental Structural Engineers (OSE) has won the prestigious Hungund-Hospet highway project on a build, operate and transfer (BoT) basis through the international competitive bidding route.
GMR Group will hold 51% equity in the consortium and 49% will be held by OSE. The consortium received the Letter of Award from National Highways Authority of India (NHAI) on Feb. 08, 2010. This is ninth highway project of GMR Group after successfully completing six projects as per schedule. Two projects measuring 211 kms are currently under development.
The project measuring 99 kms on NH-13 with an estimated project cost of Rs 17 billion entails designing, engineering, finance, procurement, construction, operation and maintenance of four laning of the Hungund Hospet section in the state of Karnataka. This will ease traffic congestion and provide a tremendous boost to trade and commerce in the state. Apart from reduction in travel time, this development is expected to improve safety levels for travelers since it will be built to world-class specifications.
Several national and international consortia participated in this bidding process in which GMR Group-OSE Consortium was adjudged as the preferred bidder. The project will be implemented through a special purpose vehicle (SPV) set up by the Group which will be signing the concession agreement with the NHAI for a period of 19 years. All activities leading to the concession agreement signing have been initiated.
Commenting on the significance of the project, Srinivas Bommidala-business chairman (Urban Infrastructure and Highways) of GMR Group said, “The project is of strategic importance to us since it provides vital link in the movement of major industrial and tourist traffic across Karnataka. We are delighted to be a part of this development and are keen on ensuring that the project caters to the needs of multiple stakeholders.“
GMR Group had entered the highways business in 2001 by winning two projects with benchmark annuity offer. It has even received an early completion bonus from the NHAI for completing the Tambaram-Tindivanam project in Tamilnadu ahead of schedule. Today, the group has a balanced portfolio of four annuity and four toll projects (toll operations for three projects have already commenced) totaling 630 kms across the length and breadth of the country. All six projects have been completed as per schedule and two are currently under developmental stage.
Shares of GMR Infrastructure declined Rs 0.5, or 0.89%, to trade at Rs 55.55. The total volume of shares traded was 845,260 at the BSE (1.29 p.m., Tuesday).