IL&FS Transportation Networks has chalked out a phased divestment plan as it seeks to raise resources to invest in mega infrastructure projects.
IL&FS Transportation Networks (ITNL) has chalked out a phased divestment plan as it seeks to raise resources to invest in mega infrastructure projects. In a marked deviation from pursuing EPC and BOT projects earlier, it is now going to bid for road projects worth above Rs 1,500 crore under the hybrid annuity model (HAM). Mukund Sapre, ED, ITNL and MD, IL&FS Engineering, talks to FE’s Rouhan Sharma on the company’s plans. Excerpts:
What is the exact impact of the goods and services tax (GST) on road developers?
We still need time to understand the impact the GST will have on our business. There will be an impact on the bottom line and a mismatch in cash flows, because of the way input credit works. There are basically four scenarios for us, namely our under-construction and completed annuity projects, as well as our under-construction and completed toll projects. I don’t have a figure at the moment because our finance teams are still working with the GST experts to understand the impact on each of these scenarios. Plus, we do a lot of sub-contracting. The good thing here is most of the concession agreements have a provision that if there is an impact due to a change in the law, they allow us to claim compensation to restore our rate of return.
With fewer projects tendered under build, operate, transfer (BOT) mode, will you bid for projects under other models?
Yes, there is hardly anything that is coming by way of BOT since they seem to have moved to the hybrid model, which, I believe, is far better. Now, for every Rs 100, you just need Rs 12 as equity, down from Rs 30 earlier. However, lenders still have a small issue regarding the termination clause but it should get sorted out. In any case, we will target the hybrid annuity model (HAM) projects which are worth more than around Rs 1,500 crore. We believe such large projects will be tendered out in future. We will target engineering, procurement and construction (EPC) contracts also since the kitty has moved to these two models. We have a target to win about Rs 5,000-6,000 crore of EPC contracts annually. Basically, wherever we have expertise, we will bid for projects that are really big, like the Mumbai Trans Harbour Link (MTHL). The Zoji La Pass, all-weather tunnel project where we have already emerged the lowest bidder, is also an example.
What is your total order book?
In terms of BOT projects, I still have to complete about Rs 11,650 crore worth of jobs. So, we have work for another two-three years with margins in a range between 12-15%. We already had about Rs 1,000 crore worth of EPC jobs from the Madhya Pradesh Road Development Corporation (MPRDC) and we’ve recently got this Zoji La Pass, which is Rs 4,899 crore. So, the total order book is around Rs 16,000-17,000 crore. For the projects in hand, we need about Rs 1,089 crore of equity out of which Rs 589 is required this year. The balance will be required in the next two years.
How are you planning to raise these resources?
Whatever improvements we are taking in refinancing and asset sales are going to bring more than what we need on the table. On the churning of assets, we want to now exit our road projects in Gujarat from which we expect about Rs 250 crore for a 26% stake. In the coming quarters, I am planning to dilute some stake in a couple of toll projects including our Moradabad-Bareilly Expressway (MBEL) project. It takes time to build traffic so you may call it a phased divestment plan. In China too, we have two serious contenders for our 49% stake in the expressway project in the municipality of Chongqing and we are in advanced discussions with them. We believe we should close the transaction this year. This transaction alone is going to reduce our consolidated debt by about Rs 4,000 crore.
What about your infrastructure investment trust (InvIT)?
We are putting three annuity projects and one toll project in the InvIT so there is far more revenue visibility as well as growth potential. We are working on it and we’ve had a couple of rounds of discussions with investors. I now believe this product has been understood. This is a product for long-term investors who will be satisfied with an annual yield of about 10-12% and there are many takers for this as well. The key thing to realise is what class of investors is this product meant for. We are targeting to hit the market now by December this year.