IDFC Alternatives and I Squared Capital are in the race for acquiring a controlling stake in two projects of Gayatri Projects, according to sources familiar with the development, report Shubhra Tandon and Deborshi Chaki in Mumbai.
The Hyderabad-based infrastructure developer has been looking to exit from its build, operate and transfer (BOT) road portfolio as it aims to focus only on projects bid out on the engineering, procurement and construction model or EPC from now.
According to sources, IDFC and I Squared-backed Cube Highways and Infrastructure are in early stages of discussion for acquiring two special purpose vehicles, Gayatri Lalitpur Roadways (GLRL) and Gayatri Jhansi Roadways (GJRL). Gayatri Projects owns a 51% stake in both the annuity-based SPVs, while IDFC holds 49% in each.
The valuations of the projects could be in the range of Rs 250-300 crore each on the basis of the annuity payments left to be received on the projects, say sources.
When contacted, Gayatri Projects managing director TV Sandeep Kumar Reddy denied any such developments were under way. Emails sent to IDFC Alternatives and I Squared Capital remained unanswered at the time of going to press.
The valuation of the projects could not be independently verified, but Abhaya Agarwal, executive director, government and transaction advisory services, EY, said in relation to valuation of road projects in the country that as revenue in an annuity project is fixed, upsides for equity holders is not available. “In toll road projects, valuations take into account risks related to fluctuations in growth rates, traffic compositions, inflation and future cash flows, so valuations are much higher,” he said.
In an annuity project, the concessionaire gets a fixed amount every year, or annuity, and the tolling rights are with the National Highways Authority of India or the sponsor of the project. Since the revenues are fixed in such a model, the concessionaire does not face market risks in terms of traffic, toll collections, etc.
According to a CARE report of November 2015, GJRL and GLRL were formed to design, develop, construct, operate, and maintain road stretches on NH26 in Uttar Pradesh on BOT annuity basis. The projects were originally expected to be completed by September 28, 2009, as per the concession agreement. However, as on April 30, 2013, around 330 metres for GJRL and around 300 metres for GLRL was still pending, which remained as on March 31, 2015. The pending construction is mainly on account of delay in handing over of balance right of way pertaining to service roads by NHAI.
GJRL is eligible to receive semi-annual annuity of Rs 29.95 crore, while GLRL will be eligible to receive semi-annual annuity of Rs 23.95 crore from NHAI. These are for a period of 20 years starting March 31, 2010. Both SPVs have received 12 annuity instalments from September 2009 till September 30, 2015, CARE noted.
For FY15, GJRL registered flat year-on-year growth in total income of Rs 60.85 crore and a wider loss of Rs 5.78 crore compared to FY14. GLRL reported flat total income of Rs 49.53 crore in FY15, while the loss stood at Rs 2.27 crore.