Larsen & Toubro’s Smart World & Communication business vertical is leading the way to make Jaipur India’s first smart city by creating a host of smart solutions like wi-fi hotspots, citizen interactive information kiosks, surveillance cameras, environmental sensors, parking information systems and remote kiosks with facility management services at select locations in the city.
L&T has received the mandate from Jaipur Development Authority (JDA), which is leading the initiative to equip Jaipur with world-class digital facilities targeted primarily at the heavy tourist traffic that the city attracts. All kind of information about the city, its rich heritage and history, locations, directions, distances, etc., will now be available at the click of a button to tourists and citizens.
“We are delighted to be involved in this farsighted programme to transform Jaipur into India’s first smart city,” said S N Subrahmanyan, deputy managing director and president, Larsen & Toubro, who also heads L&T Construction, the construction arm of L&T, where the smart world business vertical resides.
“The government’s announcement of creating 100 smart cities in the country will go a long way in making India future-ready and it is wonderful that we have an opportunity to participate in making that objective a reality.”
The Jaipur project has been planned in two phases with phase-1 aimed at transforming six major locations into smart zones in the next month-and-a-half and the remaining locations to be completed in a total of 120 days along with an operations & maintenance contract for 5 years. In phase 1, L&T is completing the work at six locations, including the famous Amer Fort.
Larsen & Toubro Ltd. (LT), India’s biggest engineering company, is in talks with investors to raise capital for a unit that builds roads, ports and other infrastructure to conserve cash.
The company is considering raising money from investors including sovereign and infrastructure funds by March for unit L&T Infrastructure Development Projects Ltd., Chief Financial Officer R. Shankar Raman said in an interview in Mumbai, declining to elaborate. Larsen said last month it’s considering the sale of some of L&T IDPL’s assets, including an initial public offering and listing in Singapore of some road projects.
Larsen wants to find additional sources for funding projects, reduce its own financial burden and raise its profile overseas with the listing of a unit. The step comes as Larsen’s interest costs almost doubled in the year ended in March and its operating profit margin was the lowest in four years.
“L&T is not selling distress assets, it is for discovering growth capital,” Raman said. “It has to monetize its assets so that L&T doesn’t have to put anything more from its balance sheet to complete existing projects and add on new ones.”
Shares of Larsen have risen 2.7 percent this year, compared with the 5.4 percent fall in the S&P BSE India Capital goods index.
Larsen will be competing with other companies that also have assets for sale, according to Viral Shah, an analyst at Angel Broking Ltd. in Mumbai.
‘A Lot of Sellers’
“There are a lot of sellers in the market and a limited number of buyers,” said Shah. “It would be difficult to command a premium on an asset in such a market unless it’s really very lucrative.”
Larsen has said it’s considering a listing in Singapore of some road assets of the unit L&T IDPL through a business trust.
A listing for its toll-road projects could raise about $700 million, two people with knowledge of the process said in September. The road portfolio of the company is valued at 220 billion rupees ($3.6 billion), according to the company’s website, with 12 operational projects.
Private equity fund Old Lane LP owns 2 percent in L&T IDPL. Larsen is trying to cut its stake in the unit to 80 percent from 98 percent, Raman had said in May.
The Indian government has been trying to encourage investment from abroad, including by sovereign funds in infrastructure projects. In September last year, the government said IDFC Ltd. and Malaysia’s sovereign fund would form a special entity for road projects in India.
GMR, IVRCL
GMR Infrastructure Ltd. (GMRI), an Indian builder of roads, utilities and airports, said in September it sold 74 percent stake in unit GMR Ulundurpet Expressways to Indian Infrastructure Fund of IDFC for 2.22 billion rupees. In April, IVRCL Ltd. agreed to sell its stake in three toll-roads and had also said it planned to sell stakes in some more projects.
Larsen has committed to invest 100 billion rupees in equity in L&T IDPL, Raman said. More than half that amount has been invested. The unit has developed and constructed the projects and now wants “secondary investors to move in to take on only revenue risk,” Raman said.
“And when they look into India, they can’t possibly see a healthier set of assets,” said Raman. “Others are selling to redeem debt.”
Larsen, which was founded by two Danish engineers in 1938, started with the import of machinery from Europe and then expanded to provide engineering and construction assignments. In 2011, the company split into different business units and subsidiaries as part of a reorganization to boost growth.
Portfolio Review
The company reviews its portfolio every five years to evaluate what is core for the business, Raman said. Engineering and construction is core and not dependent on other businesses such as electrical products, machinery, financial services, build-and-operate business and information technology, he said.
In 2011, it listed L&T Finance Holdings Ltd. after an initial public offering.
The company’s financial services, information technology and the business of building and operating toll-roads, ports and other infrastructure for specified concession periods under L&T IDPL are in separate subsidiaries, said Raman.
“They keep throwing annuity cash in good times and bad, neutralizing the risk of an erratic construction business,” said Raman. “As of now our call is to keep these assets as supports, but this is not cast in stone.”
Funding Opportunities
Assets that are not key to its main business can be monetized if there is a large opportunity elsewhere that needs to be funded, Raman said. Among the businesses that it could consider for sale to help raise funds includes L&T Infotech, he said.
“Our idea for now is to keep it and grow,” said Raman. “If we get a large acquisition opportunity that Infotech sale can finance, we’ll look at it. But it won’t be a mindless deal.”
The company had 110.3 billion rupees in cash and short-term investments as of March 31, according to data compiled by Bloomberg.
Larsen’s revenue will probably increase at the slowest annual pace in four years. Sales will rise 11 percent to 826 billion rupees in the year ending March, according to the median of 24 analysts’ estimates compiled by Bloomberg. Net income will decline for the first time in three years, according to the analysts’ estimates.
While India’s economic growth quickened last quarter from a four-year low on higher factory output, a revival is threatened by looming interest-rate increases to fight rising prices. After expanding at an average 8 percent in the five years through March 2012, the economy grew at 5 percent in the latest fiscal 12-month period.
“International investors have a difficult time assessing value of infrastructure projects in India,” said Raman. “Because the growth picked up very fast and then slipped very suddenly.”
Business trusts, like real estate investment trusts, offer investors steady dividends, greater control over the assets in the trust and enjoy a favourable tax treatment.
Larsen & Toubro Ltd is planning to list its toll road assets in Singapore in an initial public offering worth between $500 million to $1 billion using a business trust structure, IFR reported on Wednesday.
The earliest date for the IPO is the first quarter of 2014, IFR, a Thomson Reuters publication said, adding the current weak outlook for the Indian economy and the rupee makes it hard to sell a business trust IPO to foreign investors.
Nomura Holdings Inc and Standard Chartered PLC are working with Larsen & Toubro on the deal and others may also join the transaction, IFR said.
Officials with Larsen & Toubro and the banks were not available to comment.
Several other companies such as India’s Infrastructure Leasing and Financial Services, as well as Apollo Hospitals (APLH.NS), have been working on Singapore business trust IPOs for their different subsidiaries in recent months, but without much progress, IFR said.
Business trusts, like real estate investment trusts, offer investors steady dividends, greater control over the assets in the trust and enjoy a favourable tax treatment.
(Parallel talks with sovereign wealth funds, pension funds at advance stage for equity infusion at infra arm, bankers moot alternate model but no final decision taken.)
MUMBAI: Engineering major Larsen & Toubro is exploring an option to raise between Rs 2000 crore – Rs 2500 crore by clubbing operational road projects of its infrastructure development arm L&T IDPLinto a separate entity which could be listed overseas through a business trust model.This proposal was separately mooted by a European as well as a Japanese bank to the company, said multiple sources briefed on the matter. This new idea is based on the increasing popularity of the model amongst global financial investors who are scouting for high quality operating yield assets in infrastructure,real estate and renewable energy.
Currently L&T IDPL has a portfolio of 18 roads, 10 of which are operational. All the projects are housed under individual special purpose vehicles (SPVs). The total project outlay for the road projects is Rs 21,600 crore. L&T is among the top two road developers in the country.
Interestingly, the trust proposal has come at a time when L&T IDPL is already in advanced negotiations with a clutch of sovereign wealth funds, pension funds and long only investors to raise up to $500 million by diluting 15-20% at an initial equity valuation in excess of $2 billion. Abu Dhabi-headquartered Mubadala Development Corporation and Khazannah, the investment vehicle of the government of Malaysia and a global pension fund are among the potential suitors. Morgan Stanley has already been advising L&T IDPL in those live negotiations.
The sources quoted earlier added that the entire matter is still at a preliminary stage and may or may not translate into a dea. “The proposals are still being evaluated and no final decision has been made as yet. It is still preliminary brain storming,” said a senior official involved directly in ongoing discussions.
Sources add that L&T’s management would not want to upset the ongoing discussions and are evaluating if an equity investment in the parent platform (L&T IDPL) can co-exist with the listing of the operational road asset at level below via the trust model.
“Tapping alternate markets have always been part and parcel of the ideas pool for IDPL. It’s not a new or novel idea. Even some Indian companies have tried it in the past. The company’s operating team will take a final call on its strategy to find growth capital. We haven’t constrained them. Based on their decision, they will come to the board and also to L&T with a concrete proposal…They haven’t so far,” said R Shankar Raman, CFO, L&T and a director of L&T IDPL.
Raman felt that both transactions could potentially co-exist. “Infrastructure is a nascent sector, so are the different investment routes. This structure will evolve over time. If the parent’s mandate is to identify, develop and commission good projects, then post commissioning you don’t have to run them yourself for the next 35 years,” he added.
“Despite the overall slump in infrastructure and considerable macro economic headwinds, the PE transaction at L&T IDPL has progressed considerably even though it’s been slow and challenging. Serious negotiations are on with an interested party and a deal should close in the next few months. So this new development has been a surprise to us but will not be at the cost of the other. The management will only proceed if the potential financial investor does not have an objection,” said one of the sources mentioned above.
However when contacted L&T IDPL CEO K Venkatesh said he had no such plans to list the road portfolio separately or create an investment trust. “Bankers keep suggesting ideas. But we are not looking at that option. Our plan is to get private equity and we have reached a stage where some firms have shown a lot of interest and we are going ahead with due diligence.”
As per new plan, a separate trust will be created where all or most of the operational roads will get transferred. This trust then listed overseas and will be traded amongst investors who look for annualised cash flows or yields. The advisors have suggested three markets — Singapore, Hong Kong and London — for a potential listing where there is still traction for Indian paper.
The move is aimed at raising funds for the roads to meet ongoing and future capital requirements and also to trim the existing debt of parent L&T. If the debt from the operating road projects were to be transferred into a separate trust, the strain on L&T’s consolidated books will reduce significantly. Being an infrastructure developer, L&T IDPL is a cash guzzler but its debt gets reflected in the parent’s books impacting its credit ratings adversely.
Till 31st March 2013, excluding L&T standalone and L&T Financials, the group had Rs 29,000 crore of debt – a lion’s share was on account of L&T IDPL.
Unlike companies, business trusts aren’t required to show profits before distributing available cash funds. As a result, investors can get returns even before profits are generated. This is useful for businesses that generate high cash flows, but see a substantial depreciation of their assets — in this case, capital-intensive highway projects.
“Forming an investment trust looks like a viable option on paper. But in reality, a company like L&T would require to have ample number of operational projects with toll collection data history to make a move like this. Listing an investment trust overseas entails some degree of forex risk too. Also, in with domestic interest rates being high and uncertainty over GDP growth, it may be challenging to get very good valuations,” warned Nitin Bhasin, analyst, Ambit Capital.
Beyond roads, L&T IDPL’s portfolio of 27 infrastructure assets includes three ports and a metro rail project. Out of that, Rs 16,400-crore Hyderabad Metro project is one of the most ambitious BOT (build operate and transfer) asset.
The company has also partnered with Tata Steel for an equal venture for the Rs 3,000-crore Dhamra Port, with a debt equity of 2:1. As on March 2013, the total project cost of all the SPVs put together is a whopping Rs 65,600 crore. While the equity is Rs 5500 crore, the residual equity commitment of Rs 8700 crore is yet to flow in. The debt in the projects stood at Rs 51,400 crore.
The agreement with NHAI is for the four-laning of a 244-km stretch on the NH 14 between Beawar and Pindwara in Rajasthan.
Larsen & Toubro Ltd. said on Wednesday that its subsidiary L&T Infrastructure Development Projects Ltd. (L&TIDPL) has signed a Concession Agreement worth Rs. 26bn with the NHAI.
The agreement with NHAI is for the four-laning of a 244-km stretch on the NH 14 between Beawar and Pindwara in Rajasthan.
The project will be undertaken on BOT DBFO (design, built, finance and operate) basis, with a concession period of 23 years.
The estimated project cost is Rs. 26bn, and the project is scheduled to be completed within a period of 30 months.
The Concessionaire (L&T BPP Tollway Pvt. Ltd – a SPV of L&TIDPL) is entitled to collect toll from the users of the highway during the concession period on completion of the four-laning of the road.
The project corridor is one of the main evacuation routes for traffic from Kandla and Mundra ports, destined to hinterlands spread out in Northern India, extending to Rajasthan, Haryana, Delhi, Punjab and beyond.
It is reported that National Highway Authority of India has awarded 5 road projects worth INR 109.12 billion to private companies.
1. Larsen & Toubro, a highway widening project in southern India for INR 4.19 billion rupees
2. A JV company between Soma Enterprise and Isolux Corsan JV has won a road project in northern India for INR 27.5 billion
3. A JV company between IRB Infrastructure Developers and Deutsche Bank got the contract to widen a highway in western India for INR 16.94 billion
Mr Bhram Dutt secretary at transport ministry said that the projects are part of India’s INR 2.42 trillion national highway development programs.
India is seeking active private participation to build roads, airports and power plants as the government is unable to raise the funds needed to finance them on its own.
NEW DELHI: L &T-ECC, Emirates Trading Agency-KMC Construction, IRB Infrastructure Developers-Deutsche Bank, IJM Corporation-IDFC Ltd and Isolux Corsan Concessions-Soma Enterprise have bagged five national highway projects worth Rs 10,912 crore.
The projects, part of the fifth phase of National Highway Development Project (NHDP), are the first one to be under the new model concession agreement.
Secretary (road transport and highways) Brahm Dutt said this at a media briefing on Friday.
Under NHDP V, a total of 6,500 km of existing four-laned national highway have to be widened to six lane through build operate and transfer basis.
Two projects aggregating to 148 km had earlier been awarded based on the old concession agreement.
In the earlier awarded two projects, grants used to be the bidding criteria and NHAI got an upfront negative grant of Rs 975 crore.
Under the new MCA, the concept of grant has been changed to revenue share model.
On the Delhi-Jaipur section of national highway eight, the wining consortium of Emirates Trading Agency and KMC Construction has quoted 48.06% as the revenue share for NHAI.
IRB Infrastructure in tie-up with Deutsche Bank quoted 38% for Surat-Dahisar section on national highway 8. For Chennai-Tada on NH 5 and Panipat-Jalandhar on NH 1, L&T-ECC have quoted 17.07% and Isolux Corsan, have quoted 20.14% as revenue share that the government will get out of tolling revenue.
“All the revenue share will start right from the appointed date within 180 days of signing of the agreement.
In only one case, where the traffic is low, the share of revenue will start at 2% after nearly four and half years,” said Dutt. Isolux Corsan-Soma Enterprise quoted the 2% revenue share for the Panipat-Jalandhar section.
As the existing highways are already under tolling by NHAI, toll collection by the private entrepreneurs will be integrated with the existing tolling infrastructure though there will not be any increase the tolling rates.
The five consortia will be required to furnish an additional performance security, the toll will be credited to an escrow sub-account, drawal from which is linked to the achievement of project milestones.
New Delhi, Feb 22 Indian road construction projects seem to have caught the fancy of large foreign players in a big way. Out of five successful bidders for projects to widen four lane highways to six lanes which were announced today, foreign companies have equity stake in four of them.
Four international companies, namely, Dubai-based Emirates Trading Agency, Deutsche Bank, IJM Corporation, Berhad (Malaysia) and Isolux Corsan group of companies from Spain have teamed up with Indian companies and have equity stake ranging from 10 to 51 per cent, the Secretary, Road Transport and Highways, Mr Brahm Dutt, said here today.
These are the first tranche of projects bid under the new model concession agreement (MCA) that works on a revenue-share basis .
Earlier, road development projects were awarded to companies which offered upfront money to the Government to operate the six-lane highways. Now, the Government would receive part of the revenues generated through toll collections during the agreement period.
In the projects announced today, 882 km of four-lane national highways would be converted to six lanes at a total cost of Rs 10,912 crore.
The private firms would not only foot the entire construction cost, but also share a part of total revenue earned with the Government during the 12-15 year period.
Since the traffic on highways is expected to surge over time, the extent of revenue share will go up over the project life.
At the initial end of projects, National Highways Authority of India (NHAI) would mop up revenue share ranging from two per cent to 48.06 per cent. At the end of the concession period, NHAI would take a share of 12 per cent to 59 per cent.
In these projects, since four lane roads already exist, concessionaire can start collecting revenues from road users within 180 days of the signing of the agreement with NHAI. The toll revenues would be routed to an escrow account, said the NHAI Chairman, Mr N. Gokulram.
More such mega-projects are lined up for the next financial year. “We expect to invite bids for widening about 2000-2500 kilometres of four lane highways in the next financial year,” said Mr AV Sinha, Member-NHAI.
In the previous bidding method for two such projects, NHAI received an upfront negative grant of Rs 975 crore from L&T Toubro, and Ideal Road Builders.
At 13:07pm (IST),the BSE 30-share Sensex lost 324 points to 19,956 and NSE Nifty was down 99 points at 5,681.
Markets continue to stay in negative territory in the afternoon trades as selling pressure prolongs. The IT stocks are witnessing fresh buying momentum as the IT bellwether; Infosys, TCS and Satyam Computer are trading in green. IT index is the only gainer up (0.3%).
All the other key sectoral indices continue to be in red, the BSE Bankex index (down 3.5%), BSE Power index (down 3.3%) and BSE Capital Good index (down 3%).
At 1:07 pm (IST), the BSE 30-share Sensex lost 324 points to 19,956 and NSE Nifty was down 99 points at 5,681.
GSPL has gained 1% to Rs77 after reports stated that the company would invest Rs2500cr on new pipeline it also would add 850km of gas Pipeline in next year. The scrip has touched an intra-day high of Rs79 and a low of Rs73 and has recorded volumes of over 10,00,000 shares on NSE.
Fortis Financial has surged by over 5.5% to Rs105 after the company announced that it purchased 76% stake of UK’s Capital Market Solution. The scrip has touched an intra-day high of Rs109 and a low of Rs102 and has recorded volumes of over 14,000 shares on NSE.
Tata Steel is down 3% to Rs832. Reports stated that the company is launching a mega rights issue of Rs100bn to repay the bridge loans raised for funding the acquisition of Corus for US$12.9bn. The scrip has touched an intra-day high of Rs878 and a low of Rs831 and has recorded volumes of over 7,00,000 shares on NSE.
L&T has slipped 3% to Rs4205. The company yesterday signed a MoU with Raytheon Company, US, to develop defence technology for the Indian military forces. The scrip has touched an intra-day high of Rs4335 and a low of Rs4145 and has recorded volumes of over 3,00,000 shares on NSE.
Mytas Infrastructure has dropped by over 5% to Rs920. The company yesterday said a consortium the company, NCC Infrastructure Holdings and VIE India Project development and Holdings bagged the BOT contract to develop and operate airports at Gulbarga and Shimgo in Karnataka The scrip has touched an intra-day high of Rs1010 and a low of Rs905 and has recorded volumes of over 1,00,000 shares on NSE.
Strides Arcolab is trading flat at Rs291 the company yesterday announced that it would be selling 50% stake in Strides Latina to Aspen, South Africa, for US$152mn. The scrip has touched an intra-day high of Rs324 and a low of Rs290 and has recorded volumes of over 35,000 shares on NSE.
Ansal Housing is down over 3.8% to Rs179. The company declared that they have planned to raise Rs353.6mn in warrants sale. The scrip has touched an intra-day high of Rs188 and a low of Rs175 and has recorded volumes of over 19,000 shares on NSE.
HPCL has lost over 5% to Rs285. Reports stated that the company planned to spend US$4.5bn on exploration, gas marketing and petrochemicals by 2012. The scrip has touched an intra-day high of Rs304 and a low of Rs284 and has recorded volumes of over 8,00,000 shares on NSE.
