With the company raising Rs 5,035 crore by unlocking six projects, Virendra Mhaiskar, Chairman and Managing Director, IRB, elaborates upon on its utilisation plans with RAHUL KAMAT.
Capital employed: The InvIT trust will have six completed road assets, covering over 3,000 lane-km, spread across five states with an average concession period of 16 years. The trust will be raising Rs 5,035 crore as a part of this first public offering, which includes a base issue of Rs 4,300 crore, OFS and oversubscription.
Total capital employed: The enterprise value of these six projects would be around Rs 5,922 crore, which we are taking to the public. They are likely to generate a mind-boggling distributable post-tax EBIDTA of approximately Rs 26,800 crore, and an enterprise value of assets valued at Rs 5,922 crore. Importantly, IRB as a sponsor would be holding Rs 900 crore worth of units, which is 15 per cent of the enterprise value. All the six projects have a proven track record and have been operational for a good number of years and demonstrated a significant CAGR of 11.4 per cent since operational.
Utilising the raised amount: The user process would be primarily used to repay the entire debt on these underlying SPVs. The majority of the money (amounting to Rs 3,350 crore) would be utilised to repay the external debt of the underlying SPVs, and the balance Rs 1,700 crore would be utilised to pay back the sponsor's sub-debt and equity. As a result, a 12 per cent yield would be an unlevered yield at the trust end, and the trust would have more external debt to begin with.
Total operational assets: As a private-sector participant, IRB has been at the forefront of investing substantial capital in excess of Rs 19,000 crore in projects completed, and has also committed another Rs 1,100 crore towards projects under execution.
Considering operational and under-construction projects, we have close to Rs 30,000 crore of road projects in our kitty.
The total road portfolio of IRB today spans 10,000 lane-km, comprising 22 projects across eight states, of which 14 projects are already operational.
Benefit of InvIT: With InvIT funds, the overall debt burden for the company will come down. It will re-rate the company's consolidated trade debt, which will help reduce the cost of debt burden. This will help IRB improve its consolidated ratings and, in turn, help reduce the interest cost on other projects in its portfolio. IRB can deploy the cash received from the trust in building projects with project IRR (internal rate of return) of 14-15 per cent, and then offer those projects to the trust at 11-11.5 per cent discounted cash flow, thus creating value for IRB shareholders as well.
The company v with a strong execution track record v will bid for a new project IRR of 14-15 per cent, and realise the construction margin.
Once the project cash flow stabilises, the trust can then enjoy a stable and strong yield on these operational projects for its unit holders.