Canada’s CDPQ (Caisse de dépôt et placement du Québec) is expected to shortly close a transaction for three road projects of Essel Highways, a subsidiary of Essel Infraprojects, for an enterprise value of around Rs 3,500 crore, according to sources. Essel Highways, which was established in 2007, has 17 operational road projects with more than 4,400 lane km across six states. The three projects that are up for sale include two state highways of Lebad-Jaora in Madhya Pradesh and Essel Dichpally Tollway in Telangana, and a national highway project, Essel Devanahalli Tollway, in Bengaluru.
According to sources, the institutional investor, which manages several public and para-public pension plans and insurance programmes in Quebec, has emerged as the most serious bidder with whom negotiations are going on. The deal may close as early as end of July, market sources told FE.
Upon completion, the deal is expected to bring down Essel Infraprojects’ debt to nearly Rs 8,000 crore from Rs 11,466 crore. The deal is part of overall plans of the Subhash Chandra-led Essel group to reduce its debt. The group plans to raise Rs 15,000 crore via sale of its infrastructure assets.
In an e-mail response to FE’s queries, CDPQ said, “CPPQ does not comment on rumours (founded or not)”. An Essel spokesperson said, “Essel group does not comment on any speculations. The stake sale process of the group’s infra assets is in an advanced stage. Any additional detail cannot be shared due to confidentiality agreements”.
Essel Dichpally Tollway (formerly Navayuga Dichpally Tollway) part of the NH 7 on the Nagpur and Hyderabad sections, serves intra-state traffic of Andhra Pradesh, and inter-state traffic originating from Maharashtra, Karnataka and other parts of India. According to a March 2019 report by CARE Ratings, considering the location and importance of the stretch, the risk associated with traffic is mitigated to a large extent.
Tolling operations on the project started in April 2013. During 2017-2018, toll revenue increased 19% to `53 crore over FY17 on the back of increasing traffic and toll rates.
In the 11 months of FY19, the toll collection increased by 15% to Rs 55 crore compared to same period last year. “Composition of traffic on the stretch has remained favourable with majority traffic contributed by heavy commercial vehicles and passenger vehicles segment,” the ratings agency observed.
Essel Devanahalli Tollway (formerly Navayuga Devanahalli Tollway) witnessed a 13% rise in toll revenues to Rs 183 crore in FY18, driven by increase in traffic, coupled with positive toll rates revision across categories. During the 11 months of FY19, the toll revenue was `172 crore, which was flat on a comparable basis. One of the reasons being that the toll collection was hampered for a month last year.
Both the projects derive liquidity comfort from the creation of debt service reserve account (DSRA) and major maintenance reserve account (MMRA), according to CARE. Creation of DSRA and MMRA is important from the lenders’ perspective as they indicate projects’ ability to service debt. While DSRA protects a lender against unexpected circumstances impacting cash flows available to service the debt, MMRA is essential because if scheduled maintenance is not done on a project, it is an indicator that project’s ability to service debt on a timely basis is impaired.
The Lebad-Jaora project is part of the 125-km-long stretch awarded on the design, build, finance and operate basis and involves four laning of the SH-31 on the build, operate and transfer basis in Madhya Pradesh. The concession period is 30 years inclusive of the construction period of two years.
After a long gap, the highways sector is buzzing with a few deal announcements though these are subject to approvals and statutory closures. In June, Reliance Infrastructure announced that it will close sale of its Delhi Agra Toll Road to Cube Highways and Infrastructure by August for an enterprise value of Rs 3,600 crore.
Sadbhav Infrastructure Project signed definitive agreements with IndInfravit Trust, an InvIT sponsored by L&T Infrastructure Development Projects, to sell its entire equity shareholding in nine operational road projects to IndInfravit for an enterprise value of about Rs 6,610 crore.