Macquarie Group wins India’s first ToT project with a bid of Rs9,681.5 crore

New Delhi: Macquarie Group, the Sydney-based infrastructure asset management company, on Wednesday won the rights to manage 648km of national highways by bidding Rs9,681.5 crore in an auction, said National Highway Authority of India (NHAI) chairman Deepak Kumar.

The auction, the first such by the government, is part of a government plan to monetize publicly funded, operational national highways through the toll-operate-transfer (ToT) model. NHAI, which conducted the auction, was expecting to get around Rs6,258 crore from the first auction, according to Kumar.

The other bidders were Brookfield, IRB-Autostrade and Roadis-NIIF, who quoted Rs7,511 crore, Rs6,930 crore and Rs6,611 crore, respectively.

“This is a unique opportunity to invest in a high quality diversified portfolio of roads over a long concession period of 30 years. Macquarie Infrastructure and Real Assets (MIRA) managed funds have been investing in Indian toll roads since 2012,” Macquarie spokesperson said in an email to Mint.

“We take a long-term perspective when acquiring and managing assets, seeking to develop investments profitably and responsibly.”

NHAI chairman Deepak Kumar added, “We are very happy with the response and it shows that investors see national highway assets as one of the most promising in Infrastructure space in India.”

After opening the financial bids on Wednesday, NHAI member finance Rohit Singh said, “This is a magnificent start to the asset-recycling program in India. Such valuation by the long-term capital providers also reflects that there is a great appetite for well-structured public initiative. I must add that proactive reaching out to potential investors backed by high quality data and preparation acted as a catalyst in getting such a high value.”

According to market experts this will be one of the largest foreign direct investments (FDI) in public infrastructure in India, where such quantum of money would be received upfront.

Jaijit Bhattacharya, a partner and head, economics, regulatory and policy advisory, KPMG in India said, “This is a very positive development and it provides assurance that ToT is an effective mechanism for infrastructure development.”

The Cabinet Committee on Economic Affairs in 2016 authorized NHAI to monetize 75 public-funded national highways with a road length of around 4,500km that can together fetch around Rs1 trillion.

The ToT model will help NHAI raise upfront capital to fund road projects based on the engineering, procurement and construction and hybrid-annuity models.

Under this newly launched ToT model, the right to collect user-fee or toll on selected national highway stretches built through public funding is proposed to be auctioned and assigned to a concessionaire for a period of 30 years against an upfront payment of a lump-sum amount to the government.

The concessionaire is also responsible for the operation and maintenance of the roads during the tenure.

The model concession agreement also seeks to address the risks associated with such a long concession contract, with several provisions designed to deal with eventualities like roadway expansion, high toll traffic variation, etc., to ensure that concessionaires are not exposed to undue risks.

According to NHAI, various national highways will be auctioned in bundles for a stipulated period to generate funds for India’s ambitious road building project Bharatmala.

Mint reported on 20 February that NHAI was planning to auction toll collection for road length totalling around 1,720km in the next tranches.

With India facing a $526 billion infrastructure investment gap by 2040, according to the latest Economic Survey presented in January, road transport and highways minister Nitin Gadkari has been aggressive in promoting the model, participating in various road shows to generate interest for the project.

Mint reported on 4 August 2017 that at least a dozen investors had showed interest in the ToT model. The plan has generated interest from the likes of Abu Dhabi Investment Authority, Singapore’s sovereign wealth fund GIC Pte. Ltd, Singapore’s state-run investment firm Temasek Holdings Pte. Ltd, Hastings Funds Management Ltd, Keppel Infrastructure Fund Management Pte. Ltd, Mizuho Asia Infra Capital, Macquarie Group Ltd, Morgan Stanley Infrastructure Inc., Equirus Capital Pte. Ltd, I Squared Capital Advisors LLC, JP Morgan Asset Management Inc., and Infrastructure Leasing & Financial Services Ltd.