Cube Highways in talks with CDPQ to raise $200 million via stake sale

Cube Highways’s stake sale talks with CDPQ come in the backdrop of govt’s plan to operationalize the Toll-Operate-Transfer model aimed at monetizing national highways


Cube Highways is a joint venture between private equity firm I Squared Capital and World Bank’s International Finance Corp (IFC). Photo: Ramesh Pathania/Mint
Cube Highways is a joint venture between private equity firm I Squared Capital and World Bank’s International Finance Corp (IFC). Photo: Ramesh Pathania/Mint

New Delhi: Singapore-based Cube Highways and Infrastructure Pte. Ltd is in stake-sale talks with Canadian pension fund Caisse de Dépôt et Placement du Québec (CDPQ) to raise around $200 million. Both have invested heavily in India’s infrastructure sector.

Cube Highways is a joint venture between private equity firm I Squared Capital and International Finance Corp. (IFC), the private investment arm of the World Bank.

CDPQ, the second largest pension fund in Canada, has invested around $3 billion till date in the infrastructure sector in India, where it set up an office in March 2016.

“Cube Highways is in talks with CDPQ to raise around $200 million,” said a person aware of the development, requesting anonymity.

The talks come in the backdrop of the Indian government’s plan to operationalize the Toll-Operate-Transfer (TOT) model, aimed at monetizing India’s publicly funded national highways.

Under the TOT model, the National Highways Authority of India plans to lease as many as 75 national highway projects that are operational and have been generating toll revenues for at least two years. .

“Cube Highways has been trying to raise capital,” said another person who also didn’t wish to be identified.

Under the TOT model, the right of collection of user fee or toll in respect of selected operational national highway stretches constructed through public funding is proposed to be assigned for a specific period to developers and investors against upfront payment of a lump-sum amount to the government. During the tenure of the contract, the operation and maintenance responsibility would be with the assigned developer.

Cube Highways has around 1,000 lane-km of highways in its portfolio. This is through the Jaipur-Mahua Tollway Private Ltd, Mahua Bharatpur Expressways Ltd and Western UP Tollway Ltd.

I Squared Capital plans to invest as much as $1 billion in India’s infrastructure sector. It has already invested around Rs1,000 crore through its investment platform Cube Highways and Infrastructure Pte Ltd and has committed to investing in assets worth Rs2,000 crore to its rooftop solar platform Amplus Energy Solutions Pvt. Ltd.

According to information available on IFC’s website, Cube Highways was its first investment in the Indian road sector with an equity investment of $100 million to buy operational road projects.

Analysts are not enthused by the toll road prospects.

Credit rating agency India Ratings and Research Pvt. Ltd (Ind-Ra) wrote in a 21 February report that it has a negative outlook on toll roads for the next fiscal year “on the expectation of sluggish traffic growth compounded by a subdued Wholesale Price Index.”

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“Ind-Ra’s analysis reveals the vulnerability of projects, especially the ones with a short operational track record (less than three years), to a 200bp reduction in base case growth rates, which would lead to impairment in debt serviceability,” it wrote.

Queries emailed to Gautam Bhandari, founder of I Squared Capital, and spokespersons for Cube Highways, IFC and CDPQ on Monday remained unanswered.

The National Democratic Alliance government, in its budget presented on 1 February, allocated Rs64,900 crore for the construction of national highways for 2017-18, up from about Rs58,000 crore in FY 2016-17.

“Our target is 200,000km of national highways in five years and I’m hopeful that we will meet this target,” minister for road transport and highways and shipping Nitin Gadkari said in an interview on 2 February 2017 to Mint.

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