Two IL&FS road projects on block

IL&FS Transportation Networks (ITNL) is in the process of closing sale of its two annuity road assets, one in Andhra Pradesh and one in Karnataka…

IL&FS Transportation Networks (ITNL) is in the process of closing sale of its two annuity road assets, one in Andhra Pradesh and one in Karnataka, sources with knowledge of the developments told FE. It is understood that I Squared Capital is leading the race for acquiring these projects.

The total enterprise value of the two assets is expected to be in the range of Rs 1,550-1,600 crore, according to sources.

The two assets are understood to be the 328 km Andhra Pradesh Expressway (APEL), worth Rs 863 crore, and the 472 km North Karnataka Expressway (NKEL), pegged at Rs 600 crore. Both projects were bid out by National Highways Authority of India (NHAI) on a build, operate and transfer annuity basis. While NKEL has been operational since July 2004 and has a concession period of 17.5 years, APEL became operational in September 2009 and has a concession period of 20 years.

In a response to email queries, ITNL said, “Due to non-disclosure agreements, specific details cannot not be divulged.” A response from I Squared Capital was awaited at the time of going to press.

Sources said that while ITNL is talking to a host of investors to sell its entire annuity road assets portfolio, the discussions on sale of these two projects are likely to bear fruit soon.

Apart from I Squared, the company is said to be in discussions with Brookfield Asset Management, IDFC Alternatives and few pension and sovereign wealth funds to sell part or full stake in four other operational roads, and one which is still under construction.

Top management officials of ITNL in an analysts’ call in February had indicated that the company is willing to sell some of its road assets. K Ramchand, managing director, ITNL, told analysts that the company will be looking at selling part debt and equity in projects that are maturing. “It is not that we are selling the entire 100% but only part of these projects, realising some value in them,” he said. He added that it was part of the company’s strategy to meet its equity requirement as well as pare debt on its standalone entity.

“ITNL management has been actively working on divesting part or a majority stake in three to four road assets to monetise the investments. A few investors have evinced interest and offers have been made, but no definitive agreements have been signed as yet,” a source said.

ITNL’s standalone debt at the end of December 2015 stood at Rs 8,873 crore, up from Rs 8,430 crore as of September 30, 2015. Its standalone debt for the full year ended March 31, 2015, was Rs 7,439 crore. The company’s consolidated debt, which has also been on the rise, stood at Rs 26,900 crore at the end of December 2015. This was up 2% sequentially.

ITNL’s leverage ratio, though improved from 4.5x to 4x in December compared with September 2015, was still on the higher side. Edelweiss Securities in a February 2016 report said that debt reduction is key for ITNL. The company had utilised Rs 740 crore from a rights issue to prune debt during the third quarter of FY16.

Over the last one year, brokerages have pointed out that ITNL’s balance sheet has been highly leveraged and would require equity dilution to bring down its net debt to equity ratio. HSBC Global Research observed in a report last year that ITNL’s leverage balance sheet severely hampers its ability to add new projects.

The foreign brokerage also pointed out that despite the potential equity dilution, its net debt to equity would remain above 3.0x, which will restrict the company from investing into new assets.


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