Multiple road acquisitions, BOT projects in pipeline: Vertis Invit

On the heels of a ₹9,000-crore highway pact, Vertis Infrastructure Trust (formerly Highways Infrastructure Trust) is eyeing multiple highway acquisition deals in the near term. 

Vertis is an infrastructure investment trust (Invit) backed by private equity major KKR as well as Ontario Teachers’ Pension Plan (OTPP). 

“Currently, from the market side, we are still looking for a couple of deals in hybrid annuity mode (HAM) and a similar number in build operate transfer (BOT). Of course, we will keep bidding for toll operate transfer (TOT) projects. There are multiple deals. Some deals may be close to ₹5,000 crore, while some can be ₹10,000 crore. It all depends how the proceedings materialise. So, I can’t put a number now because these are different deals,” Zafar Khan, joint chief executive officer (joint CEO) of Vertis, had told Business Standard earlier this week in a virtual interaction. 

HAM refers to a model where the operator earns through annuities of 60 per cent of the project cost by the highway authority.

TOT is the model where revenue generation for the operator happens directly through toll proceeds over a 2-30 year period. The operator pays a large amount upfront to the authority. 

BOT, which had been a no-go territory for contractors for several years, is the model where the concessionaire takes all of the construction risk and recovers investment through toll revenues. 

Khan feels that the ecosystem for BOT projects is very different from what it used to be when investors would shy away from these projects and lenders would refuse to finance them. 

He said, “In terms of our assessment of buying BOTs, we are now extremely accurate. Fastag has completely given you a clear-cut tool to assess your base revenue. Now, you cannot go wrong on your base revenue calculation because 97-98 per cent revenue is through electronic toll collection. And, we are going to purchase these projects six months after the commercial operations date which is the requirement of the National Highways Authority of India.” 

Vertis has quickly grown to be among the largest in the highways sector. Senior executives said that with the rebranding, the trust may be looking at broader asset classes besides highways. 

“We started from Global Infrastructure Partners' (GIP) to KKR and then with KKR we have grown over the years. If you see, we have reached around ₹25,900 crore in terms of size of assets under management. In terms of the number of projects under asset management, we stand second. In terms of traffic growth, we are growing around 6.1 per cent. In terms of our stability between the toll and revenue asset, our split is very balanced. Our average concession life is around 14.3 years,” said Khan, who adds that the trust is finally in the “big leagues”. 

On a question of whether the trust is looking at more anchor investment after KKR and OTPP, Khan said: “As of now, we don't see any such requirement immediately. But we always welcome new investors. The platform is quite big, the returns are coming well and dividends are more than what we have underlined for them. So, there is curiosity already in the investor space and there are no restrictions, or there are no limitations for investors. For anyone who is growing, investors will always reach out to them in terms of their growth requirements.” 

Khan, who is also the vice-president of the Highway Operators Association of India, said the body is in consultations with the highways ministry after the FASTag annual pass policy was announced. 

The deliberations are focusing on how the concessionaires will be paid by the authority for users who will now avail this annual pass and not pay at every toll booth, which has been the sole source of revenue for operators.