Singapore Sovereign Wealth Fund Teams Up With Indian Road Builder

(Bloomberg) -- IRB Infrastructure Developers Ltd., an Indian road builder, said a partnership with Singapore’s sovereign wealth fund will help it bid for much larger projects and boost revenue.

The company will jointly bid with GIC Pte for all future projects, IRB’s Chairman and Managing Director Virendra Mhaiskar said in a phone interview. GIC invested as much as 44 billion rupees ($620 million) to acquire 49% of an investment trust sponsored by IRB, the companies said in a filing on Tuesday.

“We will have a strong financial partner” in GIC, Mhaiskar said. “The sheer size of business that we can now look at, doubles.”

Road construction companies such as IRB need equity to invest in existing and upcoming new projects, that’s prompting them to monetize their old road assets. A credit squeeze following the collapse of Infrastructure Leasing & Financial Services Ltd., litigation with India’s road regulator and delay in land acquisitions have also increased costs and the need for funds for construction companies.

IRB’s investment trust houses nine road assets. The Mumbai-based company created the country’s first public listed infrastructure trust two years ago, where it sold off road assets for 50.4 billion rupees.

GIC’s investment is its third major in an infrastructure project this year. It invested in GMR group’s airport business along with Tata Group and bought stake in another public listed infrastructure trust IndiGrid that holds power transmission assets. Sovereign and pension funds that offer patient capital have been increasing investment in Indian infrastructure assets with attractive yields in sight.

The GIC deal will help IRB cut project level debt and fund under-construction projects. It will help IRB save annual interest costs of as much as 3.5 billion rupees, Mhaiskar said.

The new road investment trust has an enterprise value of 225 billion rupees and a potential to generate 1.29 trillion rupees of revenue and 880 billion rupees of cash flow over the next 20 years, Mhaiskar said.

Other highlights from the interview:

• Assets transferred to new private Invit platform to have three operational and six under-construction road assets
  • These assets were not suitable for transfer to IRB Invit Fund, as public listed trusts look at yield-earning mature assets and can’t have more than 20% of assets under construction
• Even though Mumbai-Pune toll road concession, its highest revenue-generating asset, comes to an end, IRB toll collections in FY20 will be same as last fiscal
• Company will focus on building and operating toll road projects this year; the government plans to award 3,000 kilometers of roads on build-operate-transfer basis
• IRB plans to submit proposal for the latest auction that is currently being held by National Highway Authority of India
• Two road projects the company had won under the so-called hybrid annuity model are yet to start, due to delay in land acquisition by the road authority
• Company sees traffic growth of about 5% in FY20

To contact the reporter on this story: Dhwani Pandya in Mumbai at dpandya11@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Jeanette Rodrigues

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