The government, which has taken highway construction upon itself given the paucity of private equity capital, has aimed to mobilise upwards of Rs 50,000 crore over the next few months through a unique asset monetisation exercise.
The government, which has taken highway construction upon itself given the paucity of private equity capital, has aimed to mobilise upwards of Rs 50,000 crore over the next few months through a unique asset monetisation exercise. It will lease out 75 operational projects — with combined length of 3,000 km — in the state sector to private players including global funds with patient capital through the toll-operate-transfer (TOT) route.
After the expiry of the 30-year lease period, these projects, which have been operational and generating toll revenues for at least the last couple of years, would return into the government’s fold.
Bidders will recoup their investments – and returns – by collecting toll over the lease tenure.
According to official sources, the ministry of road transport and highways (MoRTH) would use the upfront receivables exclusively for funding construction of highways. For the current year, the highway construction target has been set at 15,000-km (41 km a day), more than two and a half times achieved last year. The Cabinet’s approval for the innovative asset monetization model came last week.
The sources said around 20 global funds with long-term capital including Nomura, Macquarie and Abu Dhabi Investment Authority are expected to participate in the bidding for the TOT projects. “We have made around 20 presentations to patient capital players such as Nomura, Goldman Sachs, Macquarie, Abu Dhabi Investment Bank, Canadian Pension Fund and American Pension Fund. All of them have shown interest. However, since they are unlikely to invest in a single project, we propose to bunch 5-6 projects, together valued at around $200 million,” an official said.
Asset recycling of this kind is going to be tested for the first time in India, although internationally, there have been many precedents for this. The US, for example, did it during the subprime crisis of 2008 to bolster the cash flows to the exchequer; the practice is also prevalent in Australia.
The monetization of assets, according to analysts, is a win-win for both the investors and the government. While it would help the government to spend the upfront money to build more highways, investors could benefit with low-risk steady returns. Investors will also have the opportunity to borrow funds for the upfront payment by securitising the toll.
The government has held several roads shows in India and abroad to sell the model to the global investor community, including a few of them held in the US by a team led by joint secretary in the ministry, during transport minister Nitin Gadkari’s recent visit to the US.
These projects have been built by the government under the conventional engineering, procurement and construction (EPC) model. Tolls are currently being collected by the government.
Highway construction this fiscal is proposed to be funded by borrowings by the NHAI to the tune of Rs 50,000-55,000 crore, budgetary outlay of Rs 54,000 crore and the proceeds of road cesses and toll revenues.