Sell-offs are passé; PSUs eye asset recycling to raise $11 b

P Manoj ksenia kondratieva Mumbai | Updated on June 12, 2018

NHAI’s $500-m bounty sets trend

The Centre plans to raise as much as $11 billion by March through large-scale ‘recycling’ of operational assets owned by state-owned firms, such as power transmission lines, petroleum and natural gas networks, telecom towers, power plants, railway tracks and ports.

The move is aimed at raising part of the huge resources required for infrastructure development without courting political controversy in the run-up to the 2019 general elections.

The ‘brownfield assets monetisation for infrastructure investment’ plan has gained traction with the success of the first tranche of toll, operate and transfer (TOT) highway projects bid out by the National Highways Authority of India (NHAI) in February. Nine contiguous stretches of highways totalling 680 km generated a premium of $500 million for NHAI, translating into a premium of about $1 million per km. A consortium of Ashoka Buildcon and Australia’s Macquarie Group placed the winning bid of $1.5 billion against a reserve price of $1 billion (the net present value of future cash flows).

“We are working on extending the asset recycling model to other sectors. It’s the next big opportunity,” Kumar V Prathap, Joint Secretary at the Finance Ministry, told BusinessLine on the sidelines of a conference on ‘Private Sector Participation and Innovation in Resource Mobilisation’ here on Monday.

Next big opportunity

“The Department of Investment and Public Asset Management (DIPAM) is preparing a Cabinet note on the proposal,” Prathap said. “This is not privatisation. The money will not go into the consolidated fund of India; it comes back to the same agency for more investment in infrastructure. We are trying to make it happen this year. We expect a bump-up of about 10 per cent in the overall infrastructure investment. We are currently investing about $110 billion a year, against a requirement of $200 billion.”

He explained that unlike in the case of privatisation, the ownership of the underlying assets remains with the PSUs, which may even continue to operate them. “Brownfield assets are considerably de-risked — past the land acquisition and environment and forest clearance stages — and therefore amenable to institutional investment from pension, insurance and sovereign wealth funds,” Prathap said, outlining the advantages of the model.

While highway assets were recycled through the TOT route, monetisation of assets in other sectors will be done by transferring them to a trust, such as InvITs or REITs, in which institutional investors (like pension funds) invest against capital consideration that captures the value of future cash flows with or without transferring operational control, Prathap added.

InvITs are pooling vehicles which source funds from long-term institutional investors to invest in infrastructure assets.

“It can happen in every sector, every State. Why is the government sitting on badly operated assets? The proof of the pudding is the highway TOT. There are billions of dollars waiting to come in — for assets, not for projects,” said Shailesh Pathak, CEO, L&T Infrastructure Development Projects, adding his firm would be interested in power transmission lines.

Published on June 11, 2018

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