Larsen Seeks Sovereign Funds for Infrastructure: Corporate India

December 11, 2013

By Bhuma Shrivastava and George Smith Alexander

 Larsen & Toubro Ltd. (LT), India’s biggest engineering company, is in talks with investors to raise capital for a unit that builds roads, ports and other infrastructure to conserve cash.

The company is considering raising money from investors including sovereign and infrastructure funds by March for unit L&T Infrastructure Development Projects Ltd., Chief Financial Officer R. Shankar Raman said in an interview in Mumbai, declining to elaborate. Larsen said last month it’s considering the sale of some of L&T IDPL’s assets, including an initial public offering and listing in Singapore of some road projects.

Larsen wants to find additional sources for funding projects, reduce its own financial burden and raise its profile overseas with the listing of a unit. The step comes as Larsen’s interest costs almost doubled in the year ended in March and its operating profit margin was the lowest in four years.

“L&T is not selling distress assets, it is for discovering growth capital,” Raman said. “It has to monetize its assets so that L&T doesn’t have to put anything more from its balance sheet to complete existing projects and add on new ones.”

Shares of Larsen have risen 2.7 percent this year, compared with the 5.4 percent fall in the S&P BSE India Capital goods index.

Larsen will be competing with other companies that also have assets for sale, according to Viral Shah, an analyst at Angel Broking Ltd. in Mumbai.

‘A Lot of Sellers’

“There are a lot of sellers in the market and a limited number of buyers,” said Shah. “It would be difficult to command a premium on an asset in such a market unless it’s really very lucrative.”

Larsen has said it’s considering a listing in Singapore of some road assets of the unit L&T IDPL through a business trust.

A listing for its toll-road projects could raise about $700 million, two people with knowledge of the process said in September. The road portfolio of the company is valued at 220 billion rupees ($3.6 billion), according to the company’s website, with 12 operational projects.

Private equity fund Old Lane LP owns 2 percent in L&T IDPL. Larsen is trying to cut its stake in the unit to 80 percent from 98 percent, Raman had said in May.

The Indian government has been trying to encourage investment from abroad, including by sovereign funds in infrastructure projects. In September last year, the government said IDFC Ltd. and Malaysia’s sovereign fund would form a special entity for road projects in India.


GMR Infrastructure Ltd. (GMRI), an Indian builder of roads, utilities and airports, said in September it sold 74 percent stake in unit GMR Ulundurpet Expressways to Indian Infrastructure Fund of IDFC for 2.22 billion rupees. In April, IVRCL Ltd. agreed to sell its stake in three toll-roads and had also said it planned to sell stakes in some more projects.

Larsen has committed to invest 100 billion rupees in equity in L&T IDPL, Raman said. More than half that amount has been invested. The unit has developed and constructed the projects and now wants “secondary investors to move in to take on only revenue risk,” Raman said.

“And when they look into India, they can’t possibly see a healthier set of assets,” said Raman. “Others are selling to redeem debt.”

Larsen, which was founded by two Danish engineers in 1938, started with the import of machinery from Europe and then expanded to provide engineering and construction assignments. In 2011, the company split into different business units and subsidiaries as part of a reorganization to boost growth.

Portfolio Review

The company reviews its portfolio every five years to evaluate what is core for the business, Raman said. Engineering and construction is core and not dependent on other businesses such as electrical products, machinery, financial services, build-and-operate business and information technology, he said.

In 2011, it listed L&T Finance Holdings Ltd. after an initial public offering.

The company’s financial services, information technology and the business of building and operating toll-roads, ports and other infrastructure for specified concession periods under L&T IDPL are in separate subsidiaries, said Raman.

“They keep throwing annuity cash in good times and bad, neutralizing the risk of an erratic construction business,” said Raman. “As of now our call is to keep these assets as supports, but this is not cast in stone.”

Funding Opportunities

Assets that are not key to its main business can be monetized if there is a large opportunity elsewhere that needs to be funded, Raman said. Among the businesses that it could consider for sale to help raise funds includes L&T Infotech, he said.

“Our idea for now is to keep it and grow,” said Raman. “If we get a large acquisition opportunity that Infotech sale can finance, we’ll look at it. But it won’t be a mindless deal.”

The company had 110.3 billion rupees in cash and short-term investments as of March 31, according to data compiled by Bloomberg.

Larsen’s revenue will probably increase at the slowest annual pace in four years. Sales will rise 11 percent to 826 billion rupees in the year ending March, according to the median of 24 analysts’ estimates compiled by Bloomberg. Net income will decline for the first time in three years, according to the analysts’ estimates.

While India’s economic growth quickened last quarter from a four-year low on higher factory output, a revival is threatened by looming interest-rate increases to fight rising prices. After expanding at an average 8 percent in the five years through March 2012, the economy grew at 5 percent in the latest fiscal 12-month period.

“International investors have a difficult time assessing value of infrastructure projects in India,” said Raman. “Because the growth picked up very fast and then slipped very suddenly.”



Mis management of L&T IDPL Toll booth udwariya sirohi rajasthan- Complaint from Mr. Mahendra Gehlot Visitor to Indian Tollways site-

November 25, 2013

From: mahendra gehlot
Subject: regarding mis management of L&T IDPL toll booth udwariya sirohi rajasthan

Message Body:
there office have no any register of complaint
mis management of staff
many other thing




Larsen & Toubro to develop Odisha road for Rs.1,293 crore

November 13, 2013

Press Trust of India |

New Delhi: L&T Infrastructure Development Projects (L&T IDPL) today said it will 4-lane the 161.73 km stretch on the Sambalpur-Rourkela road in Odisha for about Rs. 1,293 crore.A contract for the project, on a build-operate-transfer (BOT) basis, has already been awarded to the subsidiary of the engineering and construction major L&T by the Odisha government, the company said in a statement.

“L&T IDPL has been awarded a contract by the government of Odisha for developing a road project estimated at a total cost of Rs.1,293 crore,” it said.

The road project issued by the Odisha Works Department, will be built under the public-private-partnership model. L&T IDPL had bid for a grant of Rs. 465.30 crore for four-laning the Sambalpur-Rourkela section of the state highway.

“The stretch extends for 161.73 km and has been offered for a concession period of 22 years, including construction period of three years. This will be L&T IDPL’s first road project in Odisha to be executed on a BOT basis,” it said.

The concession agreement for the project was signed between Sambalpur Rourkela Tollways Ltd, a special purpose vehicle formed for the project by L&T IDPL and the Government of Odisha.

“Currently, the road has two lanes and has to be widened to four lanes along with other facilities such as flyovers, underpasses, bridges, bus bays, rest areas and service roads,” L&T IDPL said.

L&T IDPL will be entitled to collect appropriate tolls after the completion of construction, based on a pre- determined toll policy issued by the state government.


Speedier exits for highway developers in offing

August 13, 2012

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.”


Road runners are back in business

June 4, 2012

As highways worth Rs 60,000 cr flounder, L&T, Reliance Infra look at parallel opportunities

Aggressive bids for NHAI road projects may have forced major developers such as Reliance Infra and Larsen & Toubro (L&T) to the sidelines, but the latter are now having the last laugh. The tables have turned full circle after a drought of two to three years as the big developers are being approached by several project winners to sell their stakes as smaller firms find raising adequate equity in a volatile market and bank loans in a worsening NPA scenario, tough to come by, said company officials, analysts and bankers that Financial Chronicle spoke to.Lalit Jalan, chief executive officer at Reliance Infrastructure said, the competitive intensity in the road sector picked up in the past few years hence they decided to stay away from fresh bids. “We are looking at around 20 secondary assets since we decided not to bid for fresh projects at negative margins. The secondary assets we are looking at are those where developers are finding it difficult to complete the project as they have not been able to complete financial closure due to weak market conditions or where toll collections are not in line with their bullish estimates,” said Jalan. “The situation is so bad that there could even be distress sales by these firms,” he added. However, he declined to divulge the names of the projects they were buying out before posting them on the stock exchanges.

K Venkatesh, senior vice-president of L&T BOT projects said, lots of projects have come to L&T for sale, but the company looks at only those assets that can increase their current overall internal rate of return of high double digits. “We have bid for most of these projects and lost, so we know all the technicalities. Hence, it is not difficult to find the right valuation or the rate of return. We take the projects which interests us,” said Venkatesh.

Abhinav Bhandari, infrastructure analyst with Elara Capital said, “Around 80-100 projects would be up for sale or part stake sale in the current financial year. The value of these projects, at an average project cost of Rs 700-800 crore, would be around Rs 60,000 crore. This is almost same as what NHAI allocates in a year. It’s like a parallel system that has come up in the road sector.”

Hyderabad-based infrastructure company GMR that won a mega highway project from NHAI, said they might also look at selective secondary projects. But the rate of return on operational projects is not very high. “People are playing a waiting game as to how long they can sustain the won project.

The developers who have bid aggressively don’t really lose much. At most they will lose the retention money, which is around one per cent of the project cost, and one year of black listing,” the GMR official said.

Investment bankers that Financial Chronicle spoke to cited various reasons forcing developers to exit these projects. Many bids were driven by the desire to build their order books and puff up top lines rather than with an eye on profit margins.

“In many cases the margins built in were hardly 5-10 per cent. Any sensible bidder would look at a margin of 15-20 per cent,” said an investment banker with SBI Caps.

Unfortunately for several of the winners, banks have also become very rigorous in stress testing projects and critically analysing estimates given by companies on toll collection as well as the capital expenditure. “The banks are appointing their own consultants and evaluating on their own, before sanctioning loans for BOT projects,” said an SBI Caps official. In BOT projects, as opposed to straight RPC contracts, the project risk too is borne by the developer.

Some of the companies that won road projects in the past three to four years were IVRCL, Madhucon, Gayatri Projects, Nagarjuna Constructions, Soma Developers, Patel Engineering, Navayuga, Lanco and Essel Infra.

While IVRCL faced a potential takeover bid from the Essel group, several others are facing varying degrees of financial stress and need to improve cash flows to service outstanding debt. Sale of projects may be a step in this direction, said industry experts.


L&T, IRB among 5 to bag Rs 11k cr road projects

February 23, 2008

NEW DELHI: L &T-ECC, Emirates Trading Agency-KMC Construction, IRB Infrastructure Developers-Deutsche Bank, IJM Corporation-IDFC Ltd and Isolux Corsan Concessions-Soma Enterprise have bagged five national highway projects worth Rs 10,912 crore.

The projects, part of the fifth phase of National Highway Development Project (NHDP), are the first one to be under the new model concession agreement.

Secretary (road transport and highways) Brahm Dutt said this at a media briefing on Friday.

Under NHDP V, a total of 6,500 km of existing four-laned national highway have to be widened to six lane through build operate and transfer basis.

Two projects aggregating to 148 km had earlier been awarded based on the old concession agreement.

In the earlier awarded two projects, grants used to be the bidding criteria and NHAI got an upfront negative grant of Rs 975 crore.

Under the new MCA, the concept of grant has been changed to revenue share model.
On the Delhi-Jaipur section of national highway eight, the wining consortium of Emirates Trading Agency and KMC Construction has quoted 48.06% as the revenue share for NHAI.

IRB Infrastructure in tie-up with Deutsche Bank quoted 38% for Surat-Dahisar section on national highway 8. For Chennai-Tada on NH 5 and Panipat-Jalandhar on NH 1, L&T-ECC have quoted 17.07% and Isolux Corsan, have quoted 20.14% as revenue share that the government will get out of tolling revenue.

“All the revenue share will start right from the appointed date within 180 days of signing of the agreement.

In only one case, where the traffic is low, the share of revenue will start at 2% after nearly four and half years,” said Dutt. Isolux Corsan-Soma Enterprise quoted the 2% revenue share for the Panipat-Jalandhar section.

As the existing highways are already under tolling by NHAI, toll collection by the private entrepreneurs will be integrated with the existing tolling infrastructure though there will not be any increase the tolling rates.

The five consortia will be required to furnish an additional performance security, the toll will be credited to an escrow sub-account, drawal from which is linked to the achievement of project milestones.


L&T wins Rs4.2bn road project in TN

February 22, 2008

This order is part of the five road-widening proposals worth Rs109.1bn cleared by the Government. L&T will convert a 43.4-kilometer four-lane road into a six-lane one

Larsen & Toubro Ltd. (L&T) has bagged an order worth Rs4.2bn for converting a 43.4-kilometer four-lane road into a six-lane one in Tamil Nadu, Brahm Dutt, Secretary for Road Transport & Highways, said in New Delhi today. This order is part of the five road-widening proposals worth Rs109.1bn cleared by the Government.

A consortium of Emirates Trading Agency LLC and KMC Constructions Ltd. won a Rs19bn contract to widen 225.6 kilometers road in Haryana and Rajasthan, Dutt said. IRB Infrastructure Developers Ltd. and Deutsche Bank AG won a Rs17bn contract for a project covering 239 kilometers in Gujarat and Maharashtra.

A group comprising Malaysia’s IJM Corp. and Infrastructure Development Finance Ltd. (IDFC) bagged a Rs6.75bn order for a project in southern India. Spanish construction group Grupo Isolux Corsan SA won a Rs27.5bn contract to widen a 291-kilometers road stretch between Haryana and Punjab, Dutt said.


Gayatri Projects SPVs achieve financial closure

December 4, 2007

Gayatri Projects Ltd has announced that the Company has achieved the financial closure for the Company’s following Hyderabad Outer Ring Road Projects (SPV’s) at an interest rate of 11% p.a., ahead of the stipulated time given by the Employer namely Hyderabad Urban Development Authority (HUDA).

Financial Closure of Hyderabad Expressways Pvt Ltd (HEPL) – Total cost of the Project Rs 430.96 crores: M/s. Hyderabad Expressways Pvt Ltd promoted in Consortium, by the Company as lead technical member, with 50% share holding, bid and won road project (AP-IV) for design, construction, development, finance, operate and maintain eight lane access controlled expressway under Phase II programme of outer ring road (ORR) of Hyderabad Urban Development Authority. The concession Agreement was signed on August 17, 2007. The total debt syndicated for this Project is Rs 290.90 crores.

IL&FS (IL&FS Financial Services Ltd) has syndicated entire debt and United Bank of India is the Leader of the Consortium of Lenders for the SPV.

Details of the package awarded are as follows: AP IV – from Bongulur to Tukkuguda from km. 108 to km. 121 on BOT – Annuity basis. Estimated Project Cost incl. IDC is around Rs 430.96 cr. and the project has a positive Grant of Rs 71.86 crores. HUDA will pay a semi-annual annuity of Rs 30.49 crore to HEPL during the Annuity period. The concession period door-to-door is 15 years, with. a construction period of 2 years 6 months and Annuity period of 12 years 6 Months.

Financial Closure of Cyberabad Expressways Pvt Ltd (CEPL) – Total cost of the Project Rs 501.75 crores: M/s. Cyberabad Expressways Pvt Ltd promoted in Consortium by the Company as lead technical member with 50% share holding, bid and won road project (APII) for design, construction, development, finance, operate and maintain eight lane access controlled expressway under Phase II programme of outer ring road (ORR) of Hyderabad Urban Development Authority.

IL&FS (IL&FS Financial Services Ltd) has syndicated entire debt and United Bank of India is the Leader of the Consortium of Lenders for the SPV.

Details of the package awarded are as follows: AP II – from Kollur to Patancheru from km. 12 to km. 23.70 on BOT – Annuity basis. Estimated Project Cost incl. IDC is Rs 501.75 crores and the project has a positive Grant of Rs 81 crores. Annuity – Rs 79 cr. p.a. HUDA will pay a semi-annual annuity of Rs 39.50 crore to CEPL during the Annuity period. The concession period door-to-door is 15 years, with a construction period of 2 years 6 months and Annuity period of 12 years 6 Months. The concession Agreement was signed on August 17, 2007. The total debt syndicated for this Project is Rs 376.31 crores

The Company is a pioneer in construction of National Highways, Dams, Canals, Aquaducts, Flyovers, Coal handling plants, Bridges, Railway Projects, Airport Runways, BOT Toll and Annuity Road Projects as develop and Industrial Constructions.


Rs 550-crore road project for L&T

March 11, 2006

Larsen & Toubro Limited (L&T), bagged its first annuity-based road project — valued at Rs 550 crore from the National Highways Authority of India (NHAI).

The project involves four-laning of the 76-km Palanpur and Swaroopgunj stretch located on the East-West Corridor on NH-14, linking Gujarat and Rajasthan. Secured against international competitive bidding, the order will be executed by L&T’s Engineering Construction & Contracts (ECC) Division in 30 months.

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