InvITs have emerged as an important vehicle to help developers raise funds
ROADS & HIGHWAYS

InvITs have emerged as an important vehicle to help developers raise funds

M&A deals in the roads sector over the past three years (2019-2021) have been mainly driven by developers’ intent to monetise operational assets to unlock capital, to enable them to bid for new projects, reduce debt or improve their liquidity position. Durin...

M&A deals in the roads sector over the past three years (2019-2021) have been mainly driven by developers’ intent to monetise operational assets to unlock capital, 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 Rs.359.88 billion compared to 52 assets sold during 2015-2018 with a total project cost of Rs.370.19 billion.“Around 57 per cent of projects sold between 2019 and 2021 were to relieve the liquidity stress of promoters and 13 per cent were sold as part of the debt reduction plans of the promoter,” says Rajeshwar Burla, Group Head, Corporate Ratings, ICRA. Currently, about seven projects have signed definitive share purchase agreements, while 14 other assets worth `207 billion are on the block for monetisation. Further, around 70 Hybrid Annuity Model (HAM) projects with a total bid project cost of `874.94 billion are expected to become operational by the end of 2023. Of the 30 projects monetised between 2019 and 2021, 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 after the fulfilment of certain regulatory requirements. While five of the 30 are state road projects, 21 of the 30 projects have been operational for more than four years and the median balance concession period stood at 14 years.“The monetisation of these assets is likely to improve the sponsors’ liquidity position and have a positive impact on their credit profile,” adds Burla.

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