Recycling Capital

Asset creation through asset monetisation

The government’s focus on infrastructure investments gave way to a fresh app­ro­­a­ch – to look beyond traditional financing sources to fund the Rs 111 trillion National Infrastructure Pipeline (NIP) over the five-year period from the financial year 2020 to 2025. Asset monetisation is one of the key strategies in this context. It involves the sale of the government’s infrastructure assets to the private sector and investors and utilisation of the proceeds for further infrastructure creation. The go­vernment has, therefore, launched the Na­tio­nal Monetisation Pipeline (NMP), which inclu­des various asset classes such as toll roads, gas pipelines, power transmission, warehouses and airports.

The road sector is a huge enabler in this monetisation drive as it has the highest share in terms of asset value. The National Highways Authority of India (NHAI) has a sizeable invent­ory of de-risked brownfield highway assets, which could be of interest to investors.

National Monetisation Pipeline

Under NMP, there lies an aggregate monetisation potential of Rs 6 trillion through core assets of the centre, over a four-year period from 2021-22 to 2024-25. The estimated value corresponds to around 14 per cent of the proposed outlay under the NIP (Rs 43 trillion). The top five sectors (by estimated value) capture 83 per cent of the total pipeline value. These include roads (27 per cent), followed by railways (25 per cent), power (15 per cent), oil and gas pipelines (8 per cent) and telecom (6 per cent).

In terms of annual phasing by value, 15 per cent of assets with an indicative value of Rs 0.88 trillion are envisaged to be rolled out in the current financial year (2021-22). Their agg­regate and year–on-year value under NMP is indicative, with the actual realisation of public assets depending on factors such as timing, transaction structuring and investor interest.

The assets identified under NMP are expected to be rolled out through a range of instruments. These include direct contractual instruments such as public-private partnership (PPP) concessions and capital market instruments such as infrastructure investment trusts (InvITs). The choice of instrument will be determined by the sector, nature of asset, timing of transactions (including market considerations), target investor profile and the level of operational/investment control envisaged to be retained by the asset owner. The monetisation value that is expected to be realised by the public asset owner may be raised in the form of upfront accruals or private sector investment.

The framework for the monetisation of core assets has the following key imperatives – se­lection of de-risked and brownfield assets with a stable revenue generation profile, and the overall transaction structured around revenue rights. The primary ownership of assets under these structures will continue to be with the government, with the framework envisaging handover of assets to the public authority at the end of the transaction term.

Monetisation of road assets

The monetisation of highway assets holds the maximum potential for carrying out the NMP exercise over the next four financial years as the sector constitutes 27 per cent of the total asset pipeline value. This would be achievable through the toll, operate and transfer (TOT) mo­del and InvIT transactions. Thus far, the NHAI has leased three TOT bundles, thereby raising over Rs 170 billion. Besides, the authority plans to raise Rs 51 billion through its InvIT, which is expected to hit the market soon. The InvIT has seen multiple deferments as traffic on national highways fell due to Covid-19 rela­ted restrictions on mobility.

The aggregate length of assets considered for monetisation during 2021-22 to 2024-25 is around 26,700 km. This is based on the length of already/to-be operational, four-lane highways and above in the country, which have the potential for revenue generation and thereby monetisation. The highway assets considered for monetisation (26,700 km) constitute around 22 per cent of the total national highways (estimated to be about 11,155 km) exclu­ding the network operated by the private sector under BOT (toll)-based concessions.

Highways that will become operational over the NMP period have also been considered a part of the monetisable asset base. They will be monetised when they complete one to two years of operations post the establishment of base traffic. Based on the past trend in the pace of award and construction, it is estimated that NHAI will add 2,000-3,000 km of monetisable toll roads every year. The total indicative value of road assets considered for monetisation is estimated at Rs 1.6 trillion.

NHAI is in the process of monetising its co­mpleted and operational highway projects through the InvIT route to mobilise additional fi­nan­cial resources. The first tranche of InvIT is expected to comprise 586 km of national highway assets in Rajasthan, Gujarat, West Bengal and Bihar. The second tranche of follow-on issue of the InvIT is also being explored by NHAI. A new entity wholly owned by NHAI, National Highways Infra Investment Managers Private Limited, has been incorporated to act as the investment manager under the proposed InvIT.

Another exercise for asset monetisation by NHAI will be toll securitization, where the au­tho­rity gets paid for investment in road construction and the private investor collects the toll.

In sum

Asset monetisation is aimed at tapping private sector investment for new infrastructure creation. This is necessary for creating employ­me-nt opportunities, thereby enabling high economic growth. The programme is envisaged to be supported through necessary regulatory in­ter­ventions in order to ensure an efficient pro­cess of asset monetisation. These will include streamlining operational modalities, encouraging investor participation and facilitating commercial efficiency. Real-time monitoring will be undertaken through the asset monetisation dashboard, as envisaged under Union Budget 2021-22, to be rolled out shortly.

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