MEP Infrastructure Developers has bagged a 1-year toll collection contract at Pungad plaza in Jharkhand from National Highways Authority of India (NHAI), says Jayant Mhaiskar, the company’s Vice Chairman and Managing Director.
Revenue of around Rs 65-66 crore is expected from this project and average return on equity on such projects is about 10-12 percent, Mhaiskar says, adding the concession fee payable to NHAI will be about Rs 57 crore annually.
He says MEP has filed for an infrastructure investment trust (InvIT) with the regulator last week, specifying that the purpose of this trust is purely to deleverage balance sheets.
Current debt of MEP is over Rs 2800 crore, he adds.
Below is the verbatim transcript of Jayant Mhaiskar's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Reema: You have got the rights to collect toll user fee for the toll plaza in Jharkhand as well as for the Pungad toll plaza on NH33. Could you tell us what could be the expected revenues from these two toll collections.
A: Apparently letter of intent (LOI) that the company has received for the Pungad toll plaza which is in Jharkhand. This is the 10th state we would be working in the current financial year. The company would be paying Rs 56 crore odd to the authority on yearly basis payable or weekly basis.
Nigel: Could you give us more sense about this project. What will be the RoE on it, what will be the profitability on this project? You have told us that you will be paying around Rs 57 crore approximately. So what’s your analysis?
A: The Company expects to collect revenue in excess of Rs 65-66 crore from this particular project. The typical RoEs that we work on one year project depend anywhere between 10 and 12 percent net of all expenditure.
Reema: These are on both of them for the Jharkhand and the Pungad toll plaza.
A: Apparently Pungad gives a plaza which is in Jharkhand so it’s a one project which we have been given the LOI.
Nigel: The period of this contract I believe is one year. You had indicated in the past that you are looking to reduce your dependence on short-term contracts and you are looking to focus on long-term projects, but this a short-term project. Why that is is the NHAI only offering short-term contract. Could you give us the difference what are the margins on short-term contracts and margins on long-term contracts.
A: Apparently this is one of the projects which on a short-term basis under the NHAI’s bucket of one year tolling which has been doing from the last four to five years. The company has been actively pursuing this particular scheme of projects. As far as the long-term projects are concerned, the NHAI has come out with operate, maintain and transfer (OMT) projects out of which company is currently doing three OMT projects which are nine year contracts. There is a large bucket of projects which would be shifted from the one year to the new concept which has been more or less finalised and expected to be bided in the first quarter of next financial year that is the Toll Operate Transfer (TOT) concept where the current one year tolling projects which are been done by the companies would be shifted or bundled together as a part of a larger contract where the government will be receiving upfront payment in tune of around Rs 800-900 crore on each of those packages which would be for a longer duration of time, anywhere between 25-30 years.
Reema: Could you walk us through and update us on the company’s plans to form Infrastructure Investment Trusts (InvITs) because you were looking at that avenue to unlock value from your road assets in order to pare down your debt.
A: That’s correct. The company has already filed for in principle approval with the regulator last week. As soon as we have some understanding from the regulator based on those and once we get in principle approval we will be moving ahead with that.
Reema: Could the entire procedure be completed in FY 17 itself, how soon. Give us some timeline and how will it help in pairing down your debt.
A: Basically what we intend to do is as you rightly said InvIT is a vehicle which has been or which would be formed predominantly for shifting assets which are currently in the SPVs of the company. The share holding would be transferred to the InvIT as part of that process.
The idea of doing the InvIT is as you rightly said is to deleverage the company in terms of the current debt situation is. However, currently the debt of the company is excess of Rs 2,800-2,900 crore. What we intend to do is the larger assets or the assets which have larger shelf life, would predominantly be shifted in the InvIT as a part of that structure and proceeds from the InvIT would predominantly be used to deleverage those companies which would be a large amount of debt which can be reduced.
Nigel: Give us numbers then, Rs 2,800 crore is your debt. For your shareholders of the listed MEP Infra, what exactly would the debt come down by after you this entire process and how fast can you see it. By the end of FY17 what should your debt look like?
A: I think it would be too premature to comment on that.
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