CDPQ pulls out of road deal with Essel

Canada’s Caisse de dépôt et placement du Québec (CDPQ) has dropped its plan to buy three road projects from cash-strapped Essel Infraprojects Ltd, three people aware of the development said, requesting anonymity.

Essel is now trying to sell these assets to a joint venture platform between India’s National Investment and Infrastructure Fund (NIIF) and Roadis, the people cited above said. Roadis is an infrastructure investor owned by PSP Investments, another Canadian pension fund manager.

Essel had previously agreed to sell these road projects to CDPQ, Canada’s second-largest pension fund manager, Mint had reported in May. The three projects were expected to fetch an enterprise value of ₹3,300-3,500 crore originally, the report said.

The assets on the block are toll roads in Madhya Pradesh (the Lebad-Jaora state highway), Karnataka (the Navayuga Devanahalli Tollway near Bengaluru airport, a national highway) and Telangana (Essel Dichpally Tollway, a state highway).

Proceeds of the sale were to be used to pay down the firm’s debt, which stood at ₹11,466 crore as of December 2018. The deal was also supposed to offer a foot in the door for CDPQ in India’s highways business, which has attracted considerable foreign investment over the past two years.

“It’s unclear why CDPQ has decided to back out of the deal, but they have,” the first person said. “Talks with NIIF began only about a week ago and Essel is keen that they match CDPQ’s offer. The numbers are very close to the original deal value,” he added.

If the talks with NIIF succeed, it will be the maiden investment for the new platform that NIIF has set up with Roadis.

In April, NIIF and Roadis launched the platform that would invest up to $2 billion in road sector in India. They will target toll-operate-transfer models, the acquisition of existing road concessions and investment opportunities in the road sector with the aim of creating a large roads platform.

An email to NIIF did not elicit a response, while a CDPQ spokesperson said the company does not comment on market rumours.

An Essel Infra spokesperson said over email: “Essel Group does not comment on any speculations. The stake sale process of the group’s infra assets is at an advanced stage. Any additional details cannot be shared due to confidentiality agreements.”

In January, the Subhash Chandra-controlled company had placed six road projects, two operating transmission lines and solar power assets on the block that would pay off the bulk of the group’s debt. The sales were expected to close within six months, but they haven’t as yet.

For roads, Essel had initially initiated talks with Cube Highways and Infrastructure Pte. Ltd, Adani Enterprises Ltd, CDPQ, Canada Pension Plan Investment Board (CPPIB) and Roadis.

The two operating transmission lines have been sold to Sekura Energy Ltd, backed by the Edelweiss Infrastructure Yield Plus fund, while part of the solar power portfolio is slated for sale to the Adani Group.

The Essel Group was founded in 1926 by Jagannath Goenka, grandfather of Subhash Chandra, and has business interests in media, packaging and infrastructure. Last November, it had decided to sell a 50% stake in its media business arm, Zee Entertainment Enterprises Ltd. On 23 July, The Economic Times reported that the group has one binding offer for the sale of Zee.

In January, a consortium of lenders to the Essel Group had agreed not to enforce collaterals and wait till 30 September, giving the group time to raise money and repay loans. For several lenders to the group, which includes banks and mutual funds, these collaterals are shares of the promoter in Essel Group companies, including Zee Entertainment Enterprises Ltd.

The group owes over ₹7,000 crore to just mutual funds.