ICRA
M&A deals in road sector over the past three years (CY2019-YTD CY2021) have been mainly driven by developers’ intent to monetise operational assets to unlock capital so as to enable them to bid for new projects, reduce debt or improve their liquidity position. During this period, a total of 30 assets were sold with a total project cost of ₹35,988 crore compared to 52 assets sold during CY2015-CY2018 with a total project cost of ₹37,019 crore.

Rajeshwar Burla, Group Head, Corporate Ratings, ICRA Limited said, “Around 57% of the projects sold between CY2019-YTD CY2021 were to relieve the liquidity stress of promoters and 13% were sold as part of the debt reduction plans of the promoter. Currently, about seven projects have signed definitive share purchase agreements while fourteen other assets worth ₹20,700 crore are on the block for monetisation. Further, around 70 hybrid annuity model (HAM) projects with a total bid project cost of ₹87,494 crore are expected to become operational by the end of FY2023 and are ideal candidates for takeover where investors prefer revenue-generating assets.”

Out of the 30 projects monetised between CY2019-YTD CY2021, 16 are toll, eight are HAM and four are annuity road projects. For the eight HAM projects sold, forward sale agreements were in place with the complete transfer of ownership expected to be concluded post fulfilment of certain regulatory requirements. While five out of the 30 are state road projects, 21 out of the 30 projects have been operational for more than four years and the median balance concession period stood at 14 years. In case of toll road projects, assets with at least four to six years of operational track record provide more comfort to the investors as the base traffic, growth rates and expenditures pertaining to regular/periodic maintenance would have been established. Moreover, issues related to user acceptability of toll rate revisions and toll leakages (if any) are also addressed.

Burla added, “For unlocking capital of infrastructure developers deployed in operational assets, Infrastructure Investment Trust (InvITs) have emerged as an important vehicle. A total of 5,558 km were moved to five InvIT platforms and three InvITs with a total length of 4,558 km are in the pipeline. This is in addition to the 6801 km of operational roads which are up for grabs under national monetisation pipeline. The monetisation of these assets is likely to improve the sponsors’ liquidity position and have a positive impact on their credit profile."
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