Singapore-based Cube Highways has emerged as the highest bidder for the third bundle of highway projects being given on lease under the toll-operate-transfer (TOT) model by offering to make an upfront payment of Rs 5,011 crore to the Natioal Highway Authority of India (NHAI). The asset comprises nine operational highway stretches with combined length of 566.27 km. The authority had set a base price of Rs 4,995.48 crore for the asset.
Sources said two other bidders — IRB Infrastructure and Larsen & Toubro and National Investment and Infrastructure Fund (NIIF) combine — placed bids that were below the base price, at Rs 3,510 crore and Rs 4,230 crore, respectively. This and the winning bid being only marginally higher than the base price indicate the reduced appetite for TOT assets among potential investors.
Backed by I Squared Capital and a wholly-owned subsidiary of the Abu Dhabi Investment Authority, Cube highways has been investing in India’s road and highway projects for some time now. In September, it had acquired five hybrid annuity projects from Dilip Buildcon.
Upon winning the third TOT, Cube Highways will have a portfolio of over 6,500 lane-km highway projects across India.
Around a dozen firms, both domestic and foreign, including Macquarie, Brookfield, Roadis, Adanis and IRB Infrastructure, had initially evinced interests to take on the long-term lease for these nine highway stretches.
Under the TOT model, publicly funded operational highway projects are given on a long-term (30 years) lease basis to domestic and foreign ‘patient capital’ investors. Successful bidders are required to pay the lease amount upfront which they can recoup their investments and returns by collecting toll over the lease tenure.
For the first time, in October 2017, NHAI had invited bids for such public-funded highway projects. In the first TOT tranche, nine highway projects were offered and Australia-based Macquarie bagged them, quoting Rs 9,681.5 crore for the total length of 680.5 km against the floor price of Rs 6,258 crore.
NHAI’s second TOT attempt, however, failed. Against its floor price of Rs 5,632 crore from eight highway projects with a total length of 586.55 km, the highest bidder, again Cube Highways, quoted only Rs 4,612 crore, forcing the authority to abandon the plan. Asset recycling of this kind is being tested in India, following many global precedents.
NHAI has plans to raise upto Rs 10,000 crore in the current fiscal from road monetisation. The authority has already issued RFP for the fourth bundle through which it intends to monetise seven stretches, measuring 401 km for a minimum of Rs 4,170 crore. Facing fund crunch, a lot of NHAI’s present and future highway building roadmap hinges on the success of TOT.
