Aurum Deal of the Month – January 2017

Spain-based toll operator Abertis Infraestructuras SA has reached an agreement for the acquisition of two operational road projects in South India from SBI-Macquarie infrastructure funds for a total consideration of EUR 128 mn.

About the Transaction

Abertis has signed share purchase agreement for acquiring 100% stake in Trichy Tollway Private Limited (TTPL) and 74% stake in Jadcherla Expressway Private Limited (JEPL) from Macquarie SBI Infrastructure Investments Pte Limited (MSIIPL) and SBI Macquarie Infrastructure Trust (SMIT). The agreement is subject to the completion of certain conditions, including the consent of companies’ lenders.

Spain-headquartered Abertis is one of the international market leader in the management of toll roads, overseeing 8,500 kilometres of high capacity roads worldwide. The company generated Revenue and EBITDA of EUR 3.6 billion and EUR 2.4 billion, respectively, in the nine months ended 30th September 2016. Around two-thirds of the company’s revenue are generated from outside Spain.

The asset sale provides SBI-Macquarie infrastructure funds an opportunity to unlock value from investments it made in 2013. SBI-Macquarie’s total investment in the two projects is estimated at around Rs 600 crore.

Background of the Assets Acquired

TTPL was formed as an SPV to build, operate and transfer (BOT) a 94 km road stretch in Tamil Nadu. The project stretch is between Ulundurpet and Padalur on NH45 linking Trichy and Chennai. TTPL achieved completion in September 2009 with final project cost of INR 7,492 mn. The concession period is 20 years, with concession expiring on December 2026. At the time of incorporation, TTPL was equally owned by IJM Trichy (Mauritius) Ltd and Shapoorji Pallonji group. In June 2013, Macquarie SBI group acquired a 74% stake in the company for INR 275 crore. Currently, TTPL is held 100% by Macquarie SBI Group- MSIIPL (72%) and SMIT (28%).

JEPL is an SPV set up for the purpose of collecting toll, based on a twenty year concession agreement (ending August 2026) with National Highway Authority of India. The project scope entailed construction (2 lane to 4 lane) and strengthening of existing two lane totalling to 46 kms road from Farukhnagar to Jadcherla and maintenance and operation of 12 km road from Thondapalli to Farukhnagar on the Bangalore-Hyderabad NH-44 (earlier NH-7) in the State of Telengana. The project commenced operations in February 2009, as per the scheduled Commercial Operation Date (COD). The total project cost was Rs. 5,206 mn. In February 2013, GMR group signed a definitive agreement with MSIIPL and SMIT to divest 74% stake in JEPL for INR 206 crore. Currently, MSSIPL and SMIT together hold 74% stake in the SPV and the balance 26% is with the GMR Group.

Rationale for acquisition

The transaction marks the entry of the Abertis Group into the Indian market and represents an opportunity to create platform for further expansion in Asia. Both the assets are located in two states with economic growth rates above the national average for India. Toll road on NH-44 is part of the main north-south traffic corridor and connects the country’s two main technology hubs, Hyderabad and Bangalore with Average Daily Traffic (ADT 2016 estimated) of ~21,000 vehicles. The 94-kilometre-long NH-45 connects the industrial areas of Trichy and Madurai with Chennai and has estimated ADT of ~17,000 vehicles.

This deal further strengthens Abertis’ status as international sector leader, with 8,650 kilometres of toll roads under management, in 14 countries in Europe, the Americas and now Asia. In financial terms, the addition of these two toll roads will enable Abertis to consolidate around EUR 30mn in annual revenue, EUR 25mn in annual EBITDA and EUR 85mn in net debt.

Recent Transactions in the Indian Road sector

Indian road sector has been witnessing a lot of deal activity in 2016 on the back of greater support from government and regulatory changes. Faster clearances and dispute resolution, last mile funding and easier exits for companies are among steps taken by the NDA government to help the sector. Roads Ministry has set a target to award 25,000km of road projects in 2016-17, compared with 10,000km achieved in 2015-16.

Some of the recent deals in the sector include:

aurum deal of the month

Disclaimer: Aurum Equity Partners LLP was not a part of this deal in any way.