2024-10-23 14:43:35 :
New Delhi: Ahmedabad-based Montecarlo Ltd, an engineering procurement and construction company, is exploring a deal to sell nine road assets at an estimated enterprise value of about $360 million (approx. $3,025 crore), the two said they were aware of the development.
The nine road assets or projects fall into the so-called hybrid annuity model, which is considered attractive because of its risk-mitigating properties.
Even so, Monte Carlo’s decision to sell all of its stakes in nine highway assets comes amid delays to multiple projects and a massive buildup of inventories in the highways industry, with several deals underway.
A recent prime example is Cube Highways emerging as a leader with approx. $4,000 crore, the Mint reported.
Cube Highways is one of the largest private toll road operators in India. Athaang Infrastructure is incubated by the government-backed Quasi-Sovereign National Investment and Infrastructure Fund.
Monte Carlo operates in the highways, irrigation and water, mining, energy infrastructure and construction sectors.
“The sale of nine HAM assets in Monte Carlo is ongoing,” the two people said, speaking on condition of anonymity.
Inquiries emailed to a Monte Carlo spokesman on Monday evening remained unanswered.
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The appeal of HAM
Experts say HAM projects are attractive from a risk reduction perspective.
Under the HAM model, franchisees receive fixed annuity compensation during the construction, operation and maintenance phases. In addition, 40% of the construction annuity is paid during the construction period and the balance is paid during the remaining concession period.
“The hybrid annuity model in the highways sector has attracted interest from fund houses and InvITs (Infrastructure Investment Trusts) because of its risk-sharing structure, in which the government funds 40 per cent of the project during construction,” said Jagannarayan Padmanabhan, senior director. Crisil Ltd. Global Head of Transport, Logistics and Mobility
“However, some InvITs are avoiding construction risks, which involve uncertainties such as delays and cost overruns. These institutions prefer operating assets that provide more predictable, stable cash flow, thereby reducing the risk exposure associated with greenfield projects,” Padmanabhan added. “As such, HAM remains attractive primarily because of its risk mitigation, but primarily to those seeking long-term investment with regular income from operating assets rather than construction phase investments.”
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Despite the slowdown in the pace of highway awards, investor interest in the highways sector continues. The number of highways to be awarded this financial year is expected to be 8,000 km as compared to 8,581 km in 2023-24.
The government has made preparations in advance $The capital expenditure for road and highway construction in 2024-25 is 2.72 trillion.
For Monte Carlo, a series of delays
As for Monte Carlo, the company had 10 HAM road projects as of the end of March, according to an April 15 report by India Ratings and Research. Among them, four have been completed and six are under construction, with a total equity commitment of $7.9 billion, of which $As of March 31, Rs 420 crore was said to have been injected.
“The project progress of the EPC road project has been slow in fiscal 2024, mainly due to the strong monsoon impact during the year. The management has applied for an extension of time,” India Ratings said.
The rating agency said five of Monte Carlo’s six ongoing road projects were behind schedule at the end of March, mainly due to delays in handing over land by authorities, heavy monsoon rains and utility transfers or design finalization delays.
It added that Monte Carlo had received extensions for three of the projects and was likely to get extensions for the other two as well.
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