20 road developers exit projects worth Rs 12,327 cr in 2 yrs

With the relaxation in exit policy norms, nearly 20 road assets worth around Rs 12,327 crore have been monetised during the past 24 months, says a report.
Sponsors in around 20 road assets involving a total cost of Rs 12,327 crore have monetised their assets as against around Rs 7,000 crore in the preceding 50 months, says a report by domestic agency Icra.
"Asset sales in the road sector have picked up over the last 24 months with the relaxation in exit policy," it said, adding three out of the 20 of these assets are state road projects and the remaining are national highway projects.

Out of the 17 highway projects, 16 were awarded before 2009 and are the direct beneficiaries of the policy decision on relaxation of the exit policy for projects awarded before 2009 in May 2015.
In May 2015, the Cabinet Committee on Economic Affairs relaxed the exit policy for projects awarded before 2009, allowing 100 per cent equity divestment by the developers as against 74 per cent earlier.
This move not only attracted private equity players who are more comfortable when they own 100 per cent stake in projects, but also enabled the unlocking of additional 26 per cent of the developers' equity invested in about 5,600 km of national highway projects in the PPP model, Icra said.

This can result in freeing up of around Rs 4,500 crore of equity that can support equity contribution towards building 1,500 km of national highway projects in PPP mode.

"In about 31 per cent deals, the return to developers is negative, indicating loss on investment. Developers with a weak credit profile are the ones who disposed of their assets at a loss as liquidity took precedence over profit-making for them," Icra's K Ravichandran said.
He said the projects with highest returns are secondary sale transactions wherein the sponsors are private equity investors.
"With the increase in headline inflation and the continued healthy growth in traffic, the toll collections are expected to grow by 10-11 per cent over the next two years. As the valuations have improved following a favourable outlook on toll collections and decline in interest rates, the asset sales are expected to gather further momentum," he added.

Brookfield Asset Management of Canada, Canadian Pension Funds, Macquarie Australia, I Squared Capital of the US (Cube Highways), Abertis Infraestructuras of Spain and IDFC Alternatives are the major investors currently looking for assets in the sector, the report said.
Global pension funds are also increasingly looking at acquiring road assets and staying invested for the long term, Ravichandran said.
M&A opportunities in the road sector are the highest among various infra sub-sectors with around 88 operational national highways projects totalling 7,192 km with a total project cost of Rs 69,327 crore and a median operational track record of four years, Icra said.