Sadbhav Infrastructure Project (SIPL) signed definitive agreements with IndInfravit Trust, an InvIT sponsored by L&T Infrastructure Development Projects (L&T IDPL), to sell its entire equity shareholding in nine operational road projects to IndInfravit for an enterprise value of about Rs 6,610 crore.

The move is significant, claim analysts, as it will help deleverage the balance sheet of Sadbhav Engineering and give Sadbhav Infrastructure access to capital for pending equity needs.

As part of the all-cash transaction, SIPL will receive equity value of about Rs 2,550 crore, split as 10% of IndInfravit units, and about Rs 1,900 crore in cash, according to a filing on the BSE. The deal, which has been signed at 1.7x the initial equity investment made by SIPL of Rs 1,500 crore, will also lead to a de-consolidation of net debt of Rs 4,060 crore for SIPL on these assets.

The roads portfolio comprises seven toll roads and two annuity projects with a total of 2,619 lane km in Gujarat, Karnataka, Maharashtra, Rajasthan and Telangana. The road projects have been operational for about six years for both commercial and passenger traffic. The nine roads recorded revenues of Rs 901 crore in 2018-2019, while the EBITDA (earnings before interest, tax, depreciation and amortisation) stood at Rs 790 crore during the year.

IndInfravit currently holds a portfolio of five operational toll road concessions. In addition to L&T IDPL, the other unitholders include Allianz insurance companies represented by Allianz Capital Partners, Canada Pension Plan Investment Board (CPPIB) and OMERS Infrastructure. This transaction is in line with IndInfravit’s strategy to acquire additional road projects in India, and significantly expands IndInfravit’s current portfolio.

Post the completion of sale of these assets, SIPL will continue to own three operational road project companies and 12 under-construction road projects under the Hybrid Annuity Model. According to SIPL management, the company will continue to focus on its core expertise of development of new roads and utilise sale proceeds from this transaction to recycle capital into bidding for new road projects, inject equity in current under-construction projects and prepay debt.

The three assets are: Maharashtra Border Check Post Network, Rohtak-Panipat Tollway and Rohtak Hissar Tollway. The net debt on these assets was at Rs 3,020 crore as on March 31, 2019.

On Friday, CARE Ratings downgraded Rohtak-Hissar Tollway (RHTPL)’s long-term bank facilities of Rs 942.82 crore, a special purpose vehicle for the project. The default rating came on the back of the company missing a repayment of Rs 6.5 crore on its facilities. However, later in the day, SIPL informed the BSE that it has made the outstanding debt servicing payment to its lenders and cleared its pending dues.

SIPL’s consolidated debt stood at Rs 9,459.98 crore as on March 31, compared with Rs 8,407.36 crore at the same period last year. The company had narrowed its consolidated net loss to Rs 247.86 crore for the full year ended March 31, 2019 against a net loss of Rs 337.97 crore in FY18. Net sales surged 55% to Rs 3,547.93 crore in FY19.

Commenting on the transaction, J. Subramanian, chief executive, L&T IDPL IndvIT Services (Investment ManagerIndInfravit) said, “Today’s announcement serves as a clear expression of our intentions to actively pursue growth and expand the IndInfravit Trust’s revenue base… we look forward to more such transactions in near future.”

Scott Lawrence, managing director and head of infrastructure at CPPIB, said: “The IndInfravit Trust, established by our investment partner L&T IDPL, was the first private InvIT of its kind in India, and we have been involved since its inception. We now look forward to the growth that is expected through our additional investment in these operating road assets.”

CPPIB expects its financial commitment in connection with the proposed transaction to be up to Canadian $220 million. Shashin Patel, chairman of Sadbhav, said: “The transaction and partnership with IndInfravit marks a significant milestone for Sadbhav group. We are committed to continue providing quality maintenance services and project management services to the portfolio.”