Why overseas investors are showing high interest in toll, operate, transfer (TOT) model

By: | Updated: January 19, 2018 5:43 AM

Projects to be bid out on the toll, operate, transfer (TOT) model by the National Highways Authority of India (NHAI) next month have been seen as ones that will require strong patient capital backing; Indian road developers don’t have the capacity to take these on by themselves.

TOT model, National Highways Authority of India, ROADIS, IDFC, KPMG, ITNL, TOT projects, Ashoka Buildcon, IL&FS Transportation NetworksAccording to sources, I Squared Capital is also in the race, though its representatives did not attend the second pre-bid meeting. (PTI)

Projects to be bid out on the toll, operate, transfer (TOT) model by the National Highways Authority of India (NHAI) next month have been seen as ones that will require strong patient capital backing; Indian road developers don’t have the capacity to take these on by themselves. There is now clarity on the players that are looking to fill this gap. Canadian pension investment manager PSP Investments, Autostrade India (a subsidiary of Italian toll management concessionaire Autostrade per l’ Italia) and private funds Brookfield and Macquarie are among the foreign entities that have evinced interest in these projects. PSP Investments will bid through its global road investment arm — ROADIS. Representatives of the foreign entities along with those from prospective Indian bidders, including Ashoka Buildcon, IL&FS Transportation Networks (ITNL), GMR, VR Techniche, IRB, Tata Realty and Infrastructure Roads (TRPL), attended a pre-bid meeting held at NHAI’s office in Noida on January 17. There is a strong possibility that some of these road developers may forge alliances with the large overseas investors in attendance. According to sources, I Squared Capital is also in the race, though its representatives did not attend the second pre-bid meeting. Also present for the meeting were the advisors from KPMG, lawyers from HSA Advocates and executives from infrastructure financier, IDFC.

Karunakaran Ramchand, managing director, ITNL, said the company is looking to tie up with a financial investor for the TOT model. He said, “Someone needs to confirm/guarantee that the road will perform 365 days a year. There are a lot of performance requirements for the TOT projects, the skills for which a purely financial investor may not have. This is the portion for which we have an appetite since we have both construction as well as operations and maintenance (O&M) experience. We may put in some equity as well but this game is mostly for long-term patient capital such as the insurance or pension funds”.

NHAI has put up one bundle of nine projects totalling 980 km for bids, through which it is expecting to mop up rAS 6,258 crore. Considering a debt-equity ratio of 70:30, any bidder will need to bring in almost Rs 2,000 crore as equity for the project. The roads authority has kept the bidding process limited to just a single round, skipping the expression of interest (EOI) or request for qualification (RFQ) stage, opting instead to jump to the second, or final stage of the process, known as the request for proposal (RFP). Due to this, there have been a number of queries from potential bidders with two pre-bid meetings held already. NHAI had earlier fixed January 9 as the last date for submission of bids, but it was later extended to February 8. The extension was on the request of overseas players who traditionally go on a break for Christmas and return to work only in the new year.

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