BackMadhucon plans to sell 74% stake in Agra–Jaipur Expressways project
Hyderabad-based road developer to sell stake in Madhucon AgraJaipur Expressways to IDFC Alternatives
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Mumbai: Madhucon Projects Ltd, a Hyderabad-based road developer, plans to sell at least 74% stake in Madhucon Agra–Jaipur Expressways Ltd to IDFC Alternatives Ltd, the private equity (PE) arm of IDFC Ltd, two people close to the development said.
Madhucon Agra-Jaipur Expressways is a so-called build-operate-transfer (BOT) project along National Highway (NH) 11 and connects NH 8 with NH 2, which are part of the Golden Quadrilateral. The expressway connects Bharatpur with Mahua in Rajasthan.
The project was awarded by the National Highway Authority of India (NHAI) with a concession period of 25 years starting 31 October 2005. Tolling on the expressway commenced in May 2009.
“Madhucon is looking to divest about 74% stake in the road asset (Agra-Jaipur Expressways). We are evaluating the proposal to invest in the project," said a top official at IDFC Alternatives. The official, however, said the discussions are at a preliminary stages and asked not to be identified.
The valuation at which IDFC Alternatives will pick up stake in the project could not be ascertained.
A spokesperson for IDFC Alternatives said the company does not comment on specific deals. A senior executive at Madhucon Projects said nothing has been finalized yet.
Srei Infrastructure Finance Ltd, which holds a minority stake in the road project, may also exit it as part of the transaction.
“We hold about 7% stake in Agra-Jaipur Expressways. If there is a good deal on the table, we may look at clubbing our stake with that of Madhucon," said a senior official at Srei, speaking on condition of anonymity. He added that Srei would abide by Madhucon’s decision on the stake sale.
Madhucon Projects’ plan to sell stake in Agra-Jaipur Expressways comes at a time when nearly 50 roads projects are up for sale in the country, according to Sandeep Upadhyay, senior vice-president (infrastructure solutions group), Centrum Capital Ltd. Delayed government approvals, problems related to land acquisition, and a funding crunch due to high borrowing costs have pushed a number of developers to monetize their assets.
The road sector saw a slowdown with just 1,322km of projects awarded by the ministry in 2012-13 compared with a target of 9,500km. Slower economic growth has led a decline in road traffic and raised questions over the viability of a number of road and highway projects.
The roads ministry also lowered its internal target for the award of road projects for the second time this fiscal year. The target for awarding highway projects under the National Highways Development Project was slashed to 2,128km in 2013-14, from 4,028km and much lower than the original target of 7,500km.
Since January 2013, around 10 Indian companies have either sold or announced the sale of assets in a bid to pare down ₹ 3.58 trillion in debt, according to Mint research and an August report by Credit Suisse Securities Research and Analytics.
In an October interview, Reserve Bank of India governor Raghuram Rajan said that if liquidity-strapped entities manage to raise some money, they could start bidding for projects besides fulfilling some of their past commitments.
Still, there have been few PE deals in the roads sector because of a mismatch in valuations between buyers and sellers.
According to VCCEdge, which tracks investments, only five PE deals took place in the roads sector in 2013 with a deal value of $123.53 million, compared with 10 deals worth $386.12 million in 2012.
Investment bankers say getting a high valuation may not be possible in the current political scenario. They add that potential investors are now starting to turn positive towards infrastructure projects, especially roads.
“There is some bullishness around road projects because a new government is likely to be at the helm soon. We saw that most of the infrastructure development happened during the Bharatiya Janata-Party led NDA’s (National Democratic Alliance) regime and that could be the reason for positivity returning," said Samir Bahl, head of investment banking at Anand Rathi Financial Services Ltd.
Bahl added that there could some valuation trouble for a possible deal between Madhucon and IDFC Alternatives. “The traffic projection for Agra-Jaipur Expressways has been aggressive. The infrastructure development that was supposed to happen around the project has not taken off as well."
IDFC Alternatives is one of the few PE firms that is actively looking at investments in operating infrastructure assets in the country. The firm managed to raise $644 million for its infrastructure fund under subdued market conditions last year.
IDFC Alternatives bought a 74% stake in the GMR Group’s GMR Ulundurpet Expressways Pvt. Ltd for ₹ 222 crore in 2013. The GMR Group has sold a 74% stake in another road unit—GMR Jadcherla Expressways Ltd—to Macquarie SBI Infrastructure Investments Pte Ltd and SBI Macquarie Infrastructure Trust for more than ₹ 200 crore in 2013.
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