Cube Highways, formed by the two leading global financial institutions – I Squared Capital and the International Finance Corporation – on Monday announced signing of a definitive agreement with a wholly owned entity of Abu Dhabi Investment Authority (ADIA) for minority stake sale for consideration of $300-$350 million. In addition, shareholders of Cube Highways will look to invest up to $1 billion in new capital towards acquisition of additional roads and highways, as well as new platform company investments in areas such as NHAI’s toll-operate-transfer (TOT) programme, hybrid annuity model (HAM) and other areas, a company statement said. Cube Highways is an independent roads and highways platform that owns and operates more than 1,300 lane-kilometres of highways in India. It manages a diverse portfolio of toll and annuity-based roads that include Jaipur-Mahua Tollway, Mahua-Bharatpur Expressways, Western UP Tollway and Andhra Pradesh Expressways. Gautam Bhandari, director of Cube Highways and partner at I Squared Capital, said: “We are pleased to partner with ADIA and IFC to further grow our highways portfolio in India. This new capital commitment comes at a very exciting time, especially following the positive reforms undertaken by the NHAI and the Ministry of Road Transport and Highways.” Edelweiss Financial Services acted as the sole adviser to Cube Highways in the transaction.
While the investor appetite to pick up operational road assets remains intact, legacy issues have slowed down the deals momentum in India. As of June, close to 200 road projects entailing investment of Rs 60,000 crore were on the block. However, most of these may not be viable, say industry experts. Approximately, half these ventures have been executed on the PPP (public-private-partnership) mode. In the absence of a framework that facilitates resolution of disputes, and helps ease stress, few assets are expected to change hands in near term. Currently, there are very few revenue-generating projects on the block.
In the past two years, barely two dozen deals have been struck in the roads sector; many of these have been single assets valued at between Rs 100 crore and Rs 300 crore. However, there was one large portfolio transaction worth over Rs 2,600 crore in which Gammon Infrastructure Projects sold six road assets and three power assets to Canada-based Brookfield AMC.
However, in the planned TOT programme of the NHAI, several global pension funds, sovereign funds and large private equity are expected to put in their bids. The interest from a large section of global funds in the Indian highways sector has also kept the valuation expectation of the sellers of road assets on the higher side.