Road Asset Monetisation: NHAI Receives Rs 5,011 cr In Upfront Payment From Cube Highways For 3rd Tranche Of TOT Bundle


The National Highways Authority of India has received upfront payment of Rs 5,011 crore from Singapore-based toll roads platform Cube Highways and Infrastructure which won its third tranche of highway projects under toll-operate-transfer (TOT) mode.

“The NHAI has awarded TOT 3 bundle (566 Km in length) consisting of nine toll plazas in the state of UP, Jharkhand, Bihar and Tamil Nadu under its ambitious Toll-Operate-Transfer (ToT) model to M/s. Cube Mobility Investment Pte. Ltd. (Cube Highways) and has received upfront consideration of Rs 5,011 crore today,” Ministry of Road Transport and Highways said in a statement.

The award ceremony was held through video conferencing and was chaired by Union Minister for Road Transport and Highways Nitin Gadkari while Minister of State for Road Transport and Highways VK Singh and NHAI Chairman S S were present on the occasion.

Cube Highways had earlier emerged as the highest bidder for the third bundle of the toll-operate-transfer (TOT) projects offered by NHAI by quoting ₹ 5,011-crore fee.

In September this year,  Cube Highways  announced that it has entered into a financing agreement with State Bank of India (SBI) for availing a term loan facility of ₹3,500 crore for TOT or toll operate transfer-Bundle 3 projects of NHAI.

The Cube Highways portfolio has 27 highways with nearly 8,400 lane-kilometers across India, including assets under various stages of closing.

In June 2019, NHAI had invited bids for the third bundle of toll-operate-transfer (TOT) auctions  for nine highway stretches totalling 566.27 km in a four-lane configuration across Uttar Pradesh, Bihar, Jharkhand, and Tamil Nadu.

Cube Highways, which is backed by global infrastructure fund I Squared Capital and World Bank’s private investment arm International Finance Corp. (IFC), emerged as the top bidder for the third round by quoting ₹5,011 crores to the government for a 30-year concession period. This is against the initial estimated concession value (IECV), or reserve price, of ₹4,995.48 crores set by the NHAI for the road bundle. The National Investment and Infrastructure Fund (NIIF) quoted ₹ 4,230 crores while Mumbai-based IRB quoted ₹ 3,510 crores.

Under the TOT Model, Cube Highways will be granted the right to collect tolls for 30 years on payment of an upfront consideration.In addition, Cube Highways will invest more than INR 700 crore for various improvements and capital expenditures, making it one of the largest foreign direct investments in Indian roads sector.

“We are pleased to complete this landmark transaction, which comes close on the heels of the acquisitions of Farakka-Raiganj Highway and KNR Walayar Tollways, reinforcing our position as the leading owner-operator of toll-roads in the Indian Highways sector. Completing the financial closure during the Covid-19 pandemic is a testament to the capabilities of the Cube Highways team and the strength of the Cube Highways platform. This is a defining transaction for transportation Public Private Partnerships globally and highlights the leadership that NHAI has demonstrated in implementing innovative frameworks for private sector participation through the BOT, HAM and now the TOT models,” said Gautam Bhandari, Director of Cube Highways and Managing Partner of I Squared Capital.

Cube Highways is also reportedly in the reckoning for the fourth TOT bundle that will was to be offered by NHAI earlier this year but has been delayed. Other contenders in the fray include IRB Infrastructure, PNC Infratech, MEP Infrastructure and Edelweiss Group

The National Highways Authority of India (NHAI) had invited bids for the fourth round of toll-operate-transfer (TOT) auctions to raise Rs 2,140 crore, with a total of seven road stretches having a cumulative length of 341.46 km. The road stretches in TOT-4 are spread across Jammu & Kashmir, Punjab, Haryana, Rajasthan and Madhya Pradesh. NHAI  had initially planned TOT-4 as a ₹4,150 crore covering over 400 km but subsequently downsized the package, reducing the initial estimated concession value (IECV)—the base price of the bid—to Rs 2,165 crore. The concession period of the bundle has was also reduced to 20 years.

A couple of months before bagging the third bundle from the NHAI, Cube had acquired five hybrid annuity projects from Dilip Buildcon. In January this year, it entered into an agreement to acquire a 100% stake in KNR Walayar Tollways, an operating toll road in Kerala.

The Union Cabinet in 2016 had authorised NHAI to monetise public-funded National Highway projects. 75 operational NH projects totalling 4500 km and completed under public funding had been identified for potential monetisation using the Toll-Operate-Transfer (TOT) model TOT Model.

TOT model was developed with the aim to encourage private participation in the highways sector.

Under the TOT model, concessionaire paying a one-time concession fee upfront (lump sum), which then enables the concessionaire to operate and toll the project stretch for the pre-determined 30 year concession period. This model is applicable to EPC and BOT (Annuity) highway projects, which have completed at least 2 years since the date of completion.

The model seeks to address the risks associated with such a long concession contract and there are multiple provisions in the model concession agreement, which are designed to take care of eventualities like roadway expansion, high toll traffic variation etc to ensure that concessionaires are not exposed to undue risks.

In April last year (2018), NHAI signed a 30-year concession agreement with Macquarie Infrastructure and Real Assets (MIRA), world’s largest infrastructure fund manager, to monetise a bundle of nine fully operational highways involving 648 km in Andhra Pradesh and Gujarat. This was the first concession agreement signed under the Toll-Operate-Transfer (TOT) model. MIRA by making an upfront payment of ₹ 9681.50 crores in return for maintenance of the highways and the 30-year toll collection rights.

As against the NHAI concession value of ₹ 6258 crores MIRA bid ₹ 9681.50 crores representing a premium of 55%. It was also 30% higher than the next highest bid. NIIF also participated in the bid.

Buoyed by the huge over-subscription of the maiden bundle of 9 highway projects under TOT model, the government went in for monetisation of the second tranche of road projects totalling 586 kilometres of national highways in Rajasthan, Gujarat, West Bengal and Bihar. The base bid price was set at ₹ 5,362 crores with the winning bidder receiving a concession period of 30 years. The second bundle, however, was cancelled last year after the response was muted and the bids were below the base price.

In the Budget for 2020-21, the NHAI has been given permission to monetise 12 such bundles covering over 6000 km which is expected to mobilise around Rs 60,000 crore till 2024.