A Mitsubishi Corp-led Japanese consortium has agreed to acquire a 20% stake in I Squared Capital and International Finance Corporation (IFC)-backed Cube Highways for a consideration understood to be around $300-$350 million. Mitsubishi Corp has formed a partnership with East Nippon Expressway Co (NEXCO East) and Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN) to invest, for the first time, in an Indian toll-road platform.
This is the second minority stake sale in Cube Highways within a month. In November, a wholly-owned entity of Abu Dhabi Investment Authority (ADIA) had also signed a definitive agreement with the toll road operator picking up a minority stake in the company for about $300-$350 million. With these two transactions, the total infusion into the platform in rupee terms is expected to be in the tune of `5,000 crore, said a source with knowledge of the developments.
Cube Highways is an independent roads and highways platform that owns and operates more than 1,700 lane-km of highways in India.
It manages a diverse portfolio of toll and annuity based roads in India that include Jaipur Mahua Tollway, Mahua Bharatpur Expressways, Western UP Tollway and Andhra Pradesh Expressways.
According to sources, both ADIA and Mitsubishi will be long-term financial investors in the platform and the fund infused will be utilised for future acquisition opportunities of toll and annuity road assets, the upcoming toll-operate-transfer (TOT) programme and hybrid annuity model (HAM) of National Highways Authority of India (NHAI).
Last month, Cube Highways, in a statement, had said that in addition to the stake sale, shareholders of Cube Highways will look to invest up to $1 billion in new capital for investments into India’s road sector.
Edelweiss Financial Services acted as the sole adviser to Cube Highways in the transaction.
While the investor appetite to pick up operational road assets remain intact, legacy issues have slowed down the deals momentum in India. In 2017 too, deals in the roads sector remained in the slow lane with most investors now waiting for the toll, operate, transfer (TOT) model. There were only six deals of note in the year, against eight in 2016, and most were residual stake transactions. However, there were two big transactions in the year: Brookfield’s purchase of two toll expressway projects for `1,900 crore, and the purchase of Dilip Buildcon’s 24 road projects by first-timer in the roads sector, Shrem Group, for Rs 1,600 crore.
However, this number would seem low when compared with the assets that were on the block at the last count. As of June, close to 200 road projects entailing an investment of `60,000 crore were on the block; however, most of these assets are considered unviable, according to industry experts.
Approximately half of these ventures have been executed in the public private partnership (PPP) mode. In the absence of a framework that facilitates the resolution of disputes, and helps ease stress,
few assets are expected to change hands in the near term. Currently, there are very few revenue-generating projects on the block.
In the past two years, barely two dozen deals have been struck in the roads sector; many of these have been single assets valued at between Rs 100-300 crore. However, there was one large portfolio transaction, worth over `2,600 crore in which Gammon Infrastructure Projects sold six road assets and three power assets to Canada-based Brookfield AMC.
However, in the planned ToT programme of the NHAI, several global pension funds, sovereign funds and large private equity are expected to put in their bids. The interest from a large section of global funds in the Indian highways sector has also kept the valuation expectation of the sellers of road assets on the higher side.