Macquarie to bid for second round of TOT projects

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New Delhi | Published: August 30, 2018 3:53:58 AM

Macquarie had offered more than what NHAI had estimated from the first tranche of nine highway projects, totalling 680 km, in March this year.

Under the TOT model, successful bidders are required to pay the National Highways Authority of India (NHAI) the amount upfront.

Australian firm Macquarie, one of the world’s largest investors in the infrastructure space, will put its bid for the second round of toll operate transfer (TOT) projects, the roadshow for which started on Wednesday by the road transport and highways minister Nitin Gadkari.

Under the TOT model, successful bidders are required to pay the National Highways Authority of India (NHAI) the amount upfront. Bidders will recoup their investments and returns by collecting toll over the lease tenure of 30 years from these projects built by the government under the conventional engineering, procurement and construction model. Tolls are currently being collected by NHAI.

Macquarie had offered more than what NHAI had estimated from the first tranche of nine highway projects, totalling 680 km, in March this year. It had put in Rs 9,681.5 crore against NHAI’s estimate of Rs 6,258 crore. The authority has already issued request for proposal (RFP) offering to transfer on lease the second bunch of highway projects under the TOT model. It hopes to generate at least Rs 5,362 crore from eight highway projects admeasuring 586.55 km.

“We are a long-term investor into the infrastructure space. We are open to all possible opportunities. We will put in bids for the second bunch of highway projects on offer under the TOT model,” said Suresh Goyal, India Head and Senior Managing Director, Macquire Infrastructure and Real Assets (India). Goyal refused to divulge the kind of returns Macquarie expects from its investment.

“We are the world’s largest investor into the infrastructure space. We have a fairly good understanding of the risk that is attached with the road sector. Our understanding is that roads are integral to the Indian economy and Indian economy will continue to do well. The growth in traffic underpin the returns that we will make. We expect reasonable returns from these roads. There is no specific number I can say. Every organisation has its own benchmark,” Goyal told FE.

According to Crisil, such highway projects have limited implementation risk, largely stable cash flows and these are expected to offer a 12-13% internal rate of return. This is lower compared with the 16-18% generated in build-operate-transfer projects where the risks are, however, also higher. But that is still considered good returns by owners of ‘patient capital’ such as sovereign wealth, pension and insurance funds.

Under the ToT model, the successful bidder also needs to do the operation and maintenance job of the leased highways. Macquaire has tied up with Ashoka Buildcon to do the job for the first set of nine projects.

The government has plans to monetise 75 public-funded highway projects through the TOT model, aimed at mobilising funds for highway construction by transferring these operational projects on long-term lease basis to domestic and foreign “patient capital” investors.

The plan was approved by the Committee on Economic Affairs in 2016. Crisil estimated that NHAI can raise about Rs 60,000 crore over the next two to three years by monetising these 75 highway stretches.

The eight projects proposed to be leased out in the second tranche comprise three different sections of NH-27, the country’s second-longest national highway; four different sections of NH 31 and one section of NH 115.

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