Welspun in talks with Canadian pension fund to invest in road projects

Mamuni Das New Delhi | Updated on November 19, 2020

Welspun Enterprises is in talks with a Canadian pension fund for investment in the company’s road project assets, sources said. The company has nine road projects, with a project cost of over ₹12,000 crore.

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However, a Welspun spokesperson told BusinessLine the company has no comments to offer on this.

Of the nine projects, seven are on the hybrid annuity model (HAM) including the first phase of the Delhi-Meerut Expressway. Under HAM, a company gets the project to build and maintain a highway stretch for a long tenure. It gets 40 per cent of the project implementation cost in advance, and the remaining amount in the form of payments twice a year. The toll charges, if any, are collected by the government’s awarding authority — be it the National Highways Authority of India (NHAI) or Public Works Department.

HAM project portfolio

The company’s HAM project portfolio has an approximate value of about ₹10,000 crore. The projects include: Delhi-Meerut Expressway, Gagalheri-Saharanpur-Yamunanagar on UP-Haryana border, Chutmalpur-Ganeshpur and Roorkee-Chutmalpur-Gagalheri in UP and Uttarakhand, Aunta-Simaria in Bihar, Chikhali-Tarod and Sattanathapuram-Nagapattinam in Tamil Nadu.

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It also has an ongoing build operate transfer (BOT) project in its bag — Mukarba Chowk-Panipat in Haryana (₹2,122 crore). In a BOT project, a company constructs, builds and maintains the highway project for a long duration in return for collecting toll charges. This exposes the company to the risk of traffic density on that stretch of road over a long period.

Welspun had another BOT project — Himmatnagar Bypass in Gujarat — the concession of which ended this August.

Acquisition options

The company, while scouting for investors for its road projects, is also on the prowl for new and existing projects. Within HAM, Welspun follows an asset-light model. It acquires road projects that are struggling for completion due to funding or other issues, raises funds for the projects, awards its construction contract to local contractors and manages the project, with an aim to complete the project on time or earlier, so that it starts receiving the annuity payments from NHAI or the concerned government agency.

One of the Canadian funds present in India — Caisse de dépôt et placement du Québec, or CDPQ — had last year signed an agreement to acquire seven road projects from Global Infrastructure Partners, another infrastructure investor. The acquisition has not firmed up yet.

Another player — Canadian Pension Plan Investment Board (CCPIB) — has a portfolio of road projects in India. It has investments in L&T IDPL. It is also a founding investor in IndInfravit Trust, an infrastructure investment trust that has agreed to buy the entire equity in nine Indian operational road projects from Sadbhav Infrastructure Project Ltd for ₹6,610 crore.

Published on November 19, 2020

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