Monetary Moves: Sector adapts to new growth areas

The financing scenario in the road sector has improved considerably in the past few years. With the emergence of various alternative means of funding, the market has become more flexible towards the sector. Initiatives such as the toll-operate-transfer (TOT) model, infrastructure investment trusts (InvITs) and the hybrid annuity model (HAM) model have been crucial in bringing private capital into the sector. Besides, the National Monetisation Pipeline (NMP) has laid the roadmap for the monetisation of public infrastructure assets so as to support numerous other infrastructure efforts. As of April 2022, the government has generated Rs 960 billion under the scheme, higher than the Rs 880 billion target set for 2022-23.

In a recent development, the government intends to broaden the scope of the NMP by in­troducing a new scheme under which the sta­te governments will monetise their assets and use the proceeds for capital expenditure and infrastructure investments. Over the next three ye­ars, the states will be pushed to leverage the­ir brownfield assets to the tune of Rs 3 trillion to Rs 4 trillion. Maharashtra will play a pivotal role in the state-level asset recycling initiative. A conservative estimate indicates that the state can easily generate Rs 500 billion through monetisation in two to three years, given that it had monetised the Mumbai-Pune Expressway in 2020 for approximately Rs 80 billion.


Bank financing to the road sector continued to remain strong in 2021-22. Timely project execution and green shoots in the private investment cycle have lent confidence to banks. Be­si­des, there is a healthy pipeline of project fin­an­ce opportunities in financial year 2022-23. Apart from domestic bank lending, the Asian Development Bank (ADB), New Develop­ment Bank (NDB) and Asian Infrastructure Investme­nt Bank (AIIB) have been actively lending to road projects in India. ADB lent over $1.5 billion in the past two years, whereas NDB and AIIB have together provided financial aid worth over $2.5 billion in the past four years.

Around 16 HAM projects were able to ac­hieve financial closure during the past 15-18 months (till July 2022). Some of the special pur­pose vehicles (SPVs) for which loans were tied up include Dhrol Bhadra Highways, Ircon Lu­dhi­ana Rupnagar, Raipur-Visakhapatnam CG-Highways and Patel Vadodara Kim Express­way Private Limited. Some of the active lenders for HAM projects include the State Bank of India (SBI), Axis Bank, HDFC Bank, Punjab National Bank and ICICI Bank.

As per India Infrastructure Research, over Rs 870 billion was garnered through private equity (PE) deals during 2016-22 (till July 2022). The majority of the PE deals have been in the form of asset sales, with Cube Highways and Infra­structure leading with an investment of around Rs 200 billion in road assets (including TOT bundles), followed by the Macquarie Group for acquiring TOT Bundle 1 for Rs 96.81 billion. Meanwhile, some contractors have been facing heat from their lenders owing to debt pile-ups and breached debt covenants. In addition, they are facing delays in compensation from various government agencies for completed projects. Companies such as AJR Infra & Tolling Limited (previously Gammon Infrastructure Limited), Hindustan Construction Limited, and Gayatri Projects Limited are currently undergoing insolvency proceedings.

The monetisation experience

India is experiencing an upsurge in the number of InvITs being launched. At present, 19 InvITs are registered with the market regulator, the Securities and Exchange Board of India (SEBI). Of these, 11 InvITs are in the road sector.

Pension funds and sovereign funds have a rising interest in participating in infrastructure development. CPP Investments and the Ontario Teachers’ Pension Plan Board (OTPPB) each took 25 per cent equity in the Rs 60 billion issue of the National Highways Authority of India’s (NHAI) privately placed InvIT as anchor investors. NHAI has added three more road assets, totalling 247 km, to its InvIT, attracting foreign pension funds such as CPP Investments and the Ontario Teacher’s Pension Plan Board.

Six road assets worth Rs 50 billion have been transferred to NHAI’s InvIT. These assets in­clude the 32.6 km Kotha-Kata bypass to Kurnool in Telangana, the 75 km Palanpur-Abu Road in Gujarat, the 31 km Abu Road-Swaroop­ganj Road in Gujarat, the 160 km Chittorgarh-Kota and Chittorgarh bypass in Rajasthan, and the 77 km Maharashtra-Karnataka border to Bel­gaum. The 32.6 km Chennai bypass may also be transferred to the InvIT. Recently, the NHAI-sponsored InvIT, National Highways Infra Trust filed draft papers with the market regulator for a Rs 15 billion non-convertible debenture (NCD) issue.

IRB Infrastructure Trust, a private InvIT, also tapped the InvIT route and raised Rs 2.43 billion (as of April 2022), with IRB holding a 51 per cent stake and the Singaporean sovereign fund GIC holding the remaining 49 per cent. In a latest development, the InvIT is set to acquire the Vadodara Kim Expressway HAM project in Gujarat from IRB Infrastructure Developers Li­mited at an equity value of Rs 3.42 billion. Ex­cluding the potential acquisition of the Vado­dara Kim Expressway, the InvIT is currently managing five operational road assets with an aggregate value of approximately Rs 50 billion spread across the states of Maharashtra, Raj­as­than, Karnataka, Tamil Nadu and Punjab.

All of these factors are indicative of inc­re­asing InvIT infrastructure funding activities. Foreign investors have more confidence due to the government’s push for more asset monetisation and regulatory body SEBI’s proactive approach to minimise the risks associated with investments in InvITs.

The TOT segment has witnessed a number of developments. A total of four TOT transacti­ons have taken place in the road sector till now through which NHAI garnered over Rs 230 billion. Sekura Roads emerged as the highest bid­der for TOT bundle VI (which spans 108.1 km), and TOT bundle X (which spans 125 km) with financial bids of Rs 11.07 billion and Rs 17.11 billion, respectively. TOT bundle VI, however, has been annulled while TOT bundle X is yet to be awarded. The Indian Highway Concessions Trust won TOT bundle VII (135 km), the Eastern Peri­ph­eral Expressway of NCR, with a financial bid of Rs 62.67 billion. TOT Bundle VIII, which spans 138 km, has been annulled after receiving financial bids of Rs 13.14 billion by the highest bi­dder, Path Highways.

In another development, NHAI has scrapp­ed the auction for TOT bundle X as the highest bid by Sekura was below the reserve price of the highway development agency. However, the highest bid quoted by the NIIF for TOT bundle 9 (also below the reserve price) is still under consideration. In ad­dition to raising funds through the TOT mo­del and the InvIT, NHAI raised around Rs 210 billion via the toll securitisation route.


The Indian economy depends heavily on infrastructure as a growth engine. The demand for capital in infrastructure-based industries such as roads and highways has increased in recent years. In order to facilitate capital recycling and additional investments under public-private partnership models, InvITs will play a crucial ro­le in the monetisation of existing projects wi­th conducive regulatory frameworks, cash flow profile and taxation advantages.

The TOT model will continue to be of interest because of its low construction risk, minimal competition, already established traffic figures, as well as its provision of an ideal opportunity to build a scalable and sizeable portfolio with a single major investment.

Going forward, NHAI intends to generate Rs 100 billion from each of the three monetisation strategies that have been mapped out as these would allow investors to efficiently plan their investments and promote transparency in asset monetisation as well as build the base for long-term success of this sector.

The roads and highways sector in India has experienced fast growth due to substantial public and private investment, and it is well on its way to support the development of a new and road-rich India.