Cube Highways’ Rs 5,000-cr bid the highest for third lot of TOT projects

The National investment and Infrastructure Fund quoted Rs 4,230 crore while Mumbai-based IRB quoted Rs 3,510 crore

Cube Highways has emerged as the highest bidder for the third bundle of the toll-operate-transfer (TOT) projects offered by the National Highways Authority of India (NHAI) by quoting Rs 5,011-crore fee.

The National investment and Infrastructure Fund (NIIF) quoted Rs 4,230 crore while Mumbai-based IRB quoted Rs 3,510 crore. The authority had estimated around Rs 4,995 crore from monetisation of this tranche of 566 km of highways under the TOT model, sources said. The first bundle of the monetisation programme gave NHAI Rs 9,682 crore.

The second bundle was cancelled last year after the response was lukewarm and the bids were below the base price. The bids for the third bundle were invited on June 13 this year, and the last date for the submission of bids was September 11. Nine highway stretches of 566.27 km in Uttar Pradesh, Bihar, Jharkhand, and Tamil Nadu are on offer in the third bundle.

Several more bundles will be offered in the months to come, NHAI had said at the road show for the third bundle. Crisil Infrastructure Advisory were the transaction advisors for this tranche. The government is banking on the TOT model for monetisation of completed road stretches. These contracts requires private operators to manage and maintain roads while collecting toll on them. Since these are constructed projects, there is no construction or road acquisition risks involved the contracts...

Air India fiasco to Macquarie-NHAI pact: A tale of two privatisations

For privatisation to pick up momentum, it is essential to start with "less complex" assets

 

Charles Dickens' famous line "It was the best of times, it was the worst of times" in his novel "A Tale of Two Cities" aptly describes the recent privatisation scenario in India.

While the bid from Macquarie to acquire a bundle of nine highways from the National Highways Authority of India (NHAI) exceeded NHAI's expectations by 50 percent, the Air India privatisation effort, in sharp contrast, failed to attract even a single bidder. Both experiences, with varying degrees of complexity, teach us valuable lessons.

Investors with capital to allocate are looking at assets in India -- one of the fastest-growing economies in the world -- with an eye on the growth in the coming decades. It is important to realise that investors, in general, are primarily looking for assets with similar qualities to what the bundle of highways offered, namely (1) Cash-flow profile clarity (2) Positive cash-flow asset (3) Consumption growth story to back the asset (4) Total management control.

It is essential first to understand the nature of investors who would be interested in a privatisation or asset monetisation in India. There are primarily four types of investors that we must look at (1) Indian corporations (2) Foreign institutional investors such as pension, sovereign and insurance funds (3) Private equity firms (4) Trade buyers.

Of these, the Indian corporates will have quite a few significant players with strategic interests in the privatisation, but by and large, given their stressed balance sheets, their involvement will be limited. If anything, cash-flow clarity will be an absolute essential for them to invest in privatisation.

Large pension, sovereign and insurance funds that have started to invest in Indian assets especially over the last few years would be interested in the asset monetisation process. Such funds look for infrastructure assets with positive cash-flow profiles. Because, in general, they have long-dated liabilities, they focus on assets that can utilise long-dated debt financing to yield stable positive cash-flows. Clarity around cash-flow profiles and positive cash-flow assets will generally be the investments such funds find attractive.

Read More : Air India