MUMBAI : Adani Enterprises, Cube Highways and Infrastructure, Canada Pension Plan Investment Board (CPPIB) and IRB Infrastructure are expected to place binding bids for a set of roads coming up for auction under the toll-operate-transfer (TOT) model, two people aware of the matter said.

The National Highways Authority of India (NHAI) has put up nine stretches of roads totaling 566.27 km across Uttar Pradesh, Jharkhand, Bihar and Tamil Nadu for TOT auctions, with a 30 September deadline for submitting bids.

“More than 20 potential bidders had shown interest initially through expressions of interest (EoI) but only the above four have remained engaged with NHAI since then," said the first of the two people, who are aware of the ongoing discussions between NHAI and potential bidders.

The NHAI has set the initial estimated concession value (IECV, or reserve price) for this roads bundle at 4,995.48 crore. “CPPIB is expected to bid through its roads platform Infrastructure Development Projects Ltd (where Larsen and Toubro is a minority shareholder)," the second person said.

The current bundle is the third being auctioned under the TOT route. In March 2018, Sydney-based infrastructure asset management company Macquarie Group won the rights to manage 648km of national highways by bidding 9,681.5 crore, 1.5 times the IECV. Cube Highways and Infrastructure, the Indian roads and highways platform of global infrastructure fund I Squared Capital, was the highest bidder in the second bundle for of 586km. However, its 4,612 crore bid was below NHAI’s expectation of a minimum of 5,362 crore. NHAI cancelled the second round in February.

“This time around, we are sure the IECV will be met—that is not a point of concern for NHAI this time," the same person said. “After the cancellation of the second round, the NHAI took feedback from bidders and have set more reasonable expectations this round. The bidders want to be sure that they are correct on traffic count and are keen to get their traffic surveys right."

Adani Enterprises, IRB Infra and Macquarie declined to comment. CPPIB and Cube Highways did not respond to emails.

The TOT model is part of the government’s efforts to monetize public infrastructure and build new assets. Under the model, the highest bidder wins the rights to operate and maintain operating road assets for 30 years, with rights to toll revenues from these assets until then.

After tempering its expectations, NHAI announced the third round of TOT auctions in June. An analysis by SBICaps Securities in June showed that based on future cash flows and discount rates used to arrive at present value, the NHAI has estimated the concession value at roughly 8.8 crore/km in TOT 3, compared with 9.15 crore in the first two iterations of TOT. Mint reported in August on an NHAI statement that 27 companies had shown initial interest in TOT 3. While the last date for bids was 11 September, it was extended to give operators more time to complete due diligence.

“The TOT model in roads is likely to attract a lot more interest from foreign investors than local developers," said Vijay Agrawal, executive director, Equirus Capital. “Foreign capital views the TOT opportunity as a bond investment with a slightly higher yield without being vulnerable to additional risks."

“There are certain stretches in Tamil Nadu in the current bundle that are not part of any industrial belt; so toll revenue projections will be lower here," Agrawal added. “The roads are also spread out geographically, which is a great hedge against risk but is difficult for an investor to manage operationally. However, NHAI should be sure not to cancel the auction this time even if the bids are below expectations and should accept the bids as they are. This is how the market discovers value."


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