HCC's arm HCC Concessions will sell stake in Dhule Palesner Tollway to Sadbhav Group for Rs 204 crore. Speaking to CNBC-TV18, Arjun Dhawan, President and CEO, HCC Infra said the company has five National Highways Authority of India (NHAI) concessions excluding the Dhule project.
The company is seeing a significant pick-up in commercial vehicle sales and is focusing on completing all the projects under construction.
Below is verbatim transcript of the interview:
Q: What are the reasons for selling the stake in this particular toll-way to your joint venture (JV) partner Sadbhav Engineering?
A: HCC began this business over seven years ago. We have made a substantial investment in it. Sale of assets is part of the development life-cycle of our business. Monetising de-risk operational assets achieves a couple of goals. One is return capital to HCC besides retaining funds for future growth.
Q: What was the original stake that HCC enjoyed in this project and are there any more projects wherein HCC enjoys a minority stake? Would you want to pair that off and actually sell the minority stake to the JV partner?
A: When HCC started development of this project it started with a 37 percent stake. Since then we consolidated the stake of John Laing Investments which was one of our JV partners to take our stake up to 60 percent and we will be selling that entire 60 percent to our JV partner Sadbhav.
Q: According to the press release, the company will gain close to about Rs 204 crore by the sale of this particular stake. Will you use the money to pare down the debt or will it be used as growth capital in the other lines of businesses?
A: That will become a little more clearer in the coming weeks when HCC announces its annual results and when the funds are received closing is expected by the end of this quarter.
Q: How do you expect this move to impact the highway portfolio? Apart from this Dhule Palesner tollway, how many road projects does the company have in its overall portfolio?
A: I have covered the first part of your question in my earlier answer in terms of how we think about the development life cycle of our projects and our portfolio, Dhule has been operational for quite some time now. Besides Dhule, we have five other NHAI concessions in our portfolio. One is an annuity project, Nirmal in Andhra Pradesh which we have announced last quarter the sale to IDFC. Besides that we have three concessions in West Bengal, NH 34 one of which is operational two of which are under construction, the largest of which actually will become operational later this year.
Q: What is happening with this sector? We have in the NHAI auto momentum pick up a lot of pace especially in the last six months. Are you also looking to bid for a lot of these orders? If yes, when can we expect some of these announcements to come by?
A: The focus of the company is to complete the execution of its under construction project, complete stake sales, raise capital in some other concessions. As far as the future bidding is concerned, order intake or bids by NHAI have actually been fairly anaemic over the last year.
The focus of the government is to bring some quicker engineering procuring and construction (EPC) projects from the market to get the roads sector going. Over the next year as there is greater clarity in build-operate-transfer (BOT) sector and more public-private partnership PPP projects come to the market, probably we will answer that question better then.
Q: Now, assuming that you do bid for these projects maybe in the next year, will it be more skewed towards BOT kind of projects or will it be more towards the low margin EPC orders? Would the company be willing to go ahead and take the risk of investing so much money in BOT projects?
A: These are two inherently different businesses. HCC has traditionally been an EPC driven business for nearly about 100 years. The BOT business has just started 7 years ago and it is an investment driven business which depends on the capital available to the company, the opportunities available to the company.
At this stage, the focus is on execution, the focus is on capital raising and once we have a greater clarity in terms of how the sector will pan out. We will actually look at those opportunities very selectively and be able to price our risk accordingly.
Q: Are you seeing any signs of pick up in the traffic growth because in quarter three, on specific routes for some of these companies, we did see signs of pick up. We have had the coal block auctions. There is movement on mining. Would that be a potential opportunity? If you could throw some more colour especially on the traffic growth a bit.
A: Yes, we do not share numbers on a quarterly basis but traffic growth in fiscal 15 was anaemic. But we are seeing a significant pick up in CV production sales which we track over the last six to eight months.
We have actually seen improvements in traffic on some of our highways obviously it is fairly location specific but I think that after fairly long three year decline in commercial vehicle production and in having a fairly kind of stagnant commercial vehicle kind of growth where fairly a confidence that there is going to be an improvement once the investment cycle picks up over the next couple of years.
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