On Monday, Infrastructure Leasing and Financial Services (IL&FS), which had received binding bids for five road assets in its portfolio, said that an Italian buyer (believed to be Autostrade) pulled out of a deal for the Pune Sholapur Road Development Company Ltd because of covid-related financial concerns in its home country.
A second road project—Hazaribagh Ranchi Expressway—was also taken off the table due to a legal dispute.
Road developer PNC Infratech Ltd said in an exchange filing in June that its share purchase agreement with Cube Highways and Infrastructure Pte Ltd, signed a year ago, for a 35% stake sale in the Ghaziabad Aligarh Expressway toll road had lapsed, and would not be renewed. Another developer, MEP Infrastructure and Projects Ltd, had also signed a non-binding term sheet with Cube Highways, which is backed by global infrastructure fund I Squared Capital and the International Finance Corp. (IFC), to sell six hybrid-annuity roads for ₹450 crore, but the deal is unlikely to be completed, said a person aware of the discussions between the two parties.
In May, Canadian pension fund CDPQ had put on hold its planned purchase of a portfolio of seven toll roads for more than ₹3,000 crore from Global Infrastructure Partners—which would have been CDPQ’s first acquisition of a roads portfolio in India.
The National Investment and Infrastructure Fund and its joint venture partner Roadis (a subsidiary of Canadian pension investment manager PSP Investments )are also having a rethink on their plans to buy two road projects from Essel Infraprojects for an enterprise value of ₹2,500-3,000 crore, said the person cited above, who added that transactions totalling ₹8,000-10,000 crore, signed pre-covid are unlikely to go through now.
Besides, developers such as Ashoka Buildcon and Tata Realty and Infrastructure Ltd are also renewing their efforts to find buyers for their road portfolios.
Ashoka Buildcon has 10 BOT (build-operate-transfer) projects that it owns, and another seven that it holds through Ashoka Concessions Ltd (ACL). “The company is looking for buyers for all 17 of these projects," said a second person aware of the development.
“Macquarie-State Bank of India infrastructure fund infused ₹800 crore into ACL in 2012 for a 34% stake and they want to exit the investment. Since an equity sale is not possible, the ACL portfolio itself will be sold. Ashoka Buildcon is looking for a buyer on its fully-owned BOT projects as well, and wants to turn its attention to its HAM (hybrid annuity model) and EPC (engineering, procurement and construction) order book," the person said, requesting anonymity.
Meanwhile, Tata Realty has tried to find a buyer for its highway and infrastructure projects since the start of this year, pending a merger with Tata Housing. The company has already disbanded its infrastructure and projects team and is now renewing its efforts to sell the road portfolio, the person said.
Jagannarayan Padmanabhan, director and practice leader, transport and logistics, Crisil Infrastructure Advisory, said, “Foreign investors, particularly pension funds, long-term money, want certainty of their returns; they are not willing to take higher risk for higher reward. Today, there is so much uncertainty; we can’t estimate what the dip in traffic will be or for how long it will last. Traffic numbers are very closely intertwined with a road asset’s valuation and buyers want the traffic estimates for the initial years at least to be accurate. Now, that the traffic is hit, buyers will want to reconsider the valuation."
While highway traffic crashed in April and May; by June and mid-July, toll revenues for highway developers recovered to 75-80% of the levels seen in March prior to the outbreak. However, with several states opting for their individual lockdowns to control the spread of the virus, a national level improvement in toll revenues is not expected before September.
“I don’t think the immediate stress we are seeing is only because of the pandemic," said Sandeep Upadhayay, managing director and CEO, Centrum Infrastructure Advisory.
“Many road projects were languishing even before their financing was in place and banks are now pushing back on fresh projects that were won in aggressive bids. Neither the lender nor the promoter can bring in additional equity, so many projects are on sale. But the pandemic has reduced the asking price for sellers—from an EV-Ebitda multiple of 10-11 times earlier, this has now fallen to 7-9 times. This is because even though traffic numbers have recovered better than expected, it will take a while before we see growth return and investors are accounting for this lost time," he said.
Essel Infra, Cube Highways, MEP Infra, NIIF, Roadis and Ashoka Buildcon did not respond to emails and calls seeking comment. A spokesperson for Tata Realty said: “This is a market speculation, and as a policy, we do not want to comment on the same."