ICRA Rating has said that merger and acquisitions in the domestic road sector have witnessed a spurt between 2015 and 2018. A total of 52 road projects worth ₹37,019 crore have been sold during the three years.

“Out of the total 52 projects, six were sold at a discount and 46 at a premium (ranging between 2 and 21 per cent returns),” Rajeshwar Burla, AVP and Associate Head, Corporate Ratings, ICRA, said.

He added that the change of ownership has significantly improved the refinancing ability of the projects.

“Many projects have refinanced debt with elongated tenure and lower interest rate. Around one-third of the assets witnessed steep rating upgrades,” Burla said.

Stressed assets sale

According to him, asset sale transactions in the recent past have also been driven by lenders as the Reserve Bank of India (RBI) in its February 12, 2018 circular has put pressure on banks to resolve stressed asset issues.

In 2018, for example, three assets were sold through substitution route ICRA noted. Of these, one was initiated by the lenders as a distressed asset sale and two were initiated by the concessionaire through harmonious substitution.

“Some of the assets on block currently are available through substitution route at attractive valuations; therefore, investors are also preferring this route,” the report said.

TOT auctions

ICRA noted that despite an improvement in M&A activity in the road sector post relaxation of exit policy in May 2015. But, there has been a slowdown post mid-2016 on account of the introduction of the Toll-Operate-Transfer (TOT) model under which private developers are invited to bid for tolling rights on operational road projects in return for an upfront fee to the government.

Two TOT auctions conducted by the National Highways Authority of India (NHAI), of which one has been concluded, have gained a lot of traction among various long-term investors with large pockets, including foreign pension and PE funds.

The first TOT package has been bagged by Macquarie at ₹9,681 crore, 55 per cent more than NHAI ’s initial estimate.

The second TOT batch has failed to generate a good response. Cube Highways has emerged the highest bidder in the second TOT round by bidding ₹4,612 crore against NHAI’s estimate of ₹5,362 crore leading to non-conclusion of the auction.

Experts suggest that NHAI could rebundle the package offered at the second round to make it more attractive for investors and conduct a new auction.