APAC: I Squared in talks to buy tunnel from IL&FS

04 July 2018 - 12:00 am UTC

I Squared Capital-backed Cube Highways is in talks to buy a majority stake in the Chenani-Nashri Tunnelway in Jammu & Kashmir state from IL&FS Transportation Networks (ITNL).

The enterprise value of the deal is in the region of INR 35bn (USD 509.3m) to INR 40bn according to a banker involved, who said the deal is at the term sheet stage.

India-focused Cube Highways will look to bundle the road tunnel into an infrastructure investment trust (InvIT) – along with other road assets – a second source said.

Cube Highways will acquire additional operating assets to inject into an InvIT he said. The 9km Chenani-Nashri Tunnelway (CNT) fits its plan, he added.

ITNL is the road development arm of infrastructure development and finance major IL&FS.

The CNT, also known as Patnitop tunnel, was inaugurated by Prime Minister Narendra Modi in April 2017 and has 20-year concession period. It cost INR 40bn to build, far higher than the original estimate of INR 26bn due to bad weather and delays obtaining environmental approvals.

ITNL invested about INR 4bn equity in the design, build, finance, operate and transfer project.

The National Highways Authority of India (NHAI) pays an annual annuity of INR 6.35bn to the operator under the concession agreement.

ITNL was in talks with the Canadian Pension Plan and Investment Board (CPPIB) to acquire a stake in the CNT earlier this year, according to local media reports.

But agreement on the valuation of CNT was not reached, leading to those discussions ending, the first source said.

ITNL managing director K. Ramchand was cited by the local media saying the company was open to either selling a stake or refinance its debt in the CNT project.

“Being an annuity project from the National Highways Authority of India (NHAI), this project will receive an AAA rating, which will help us in getting very fine rates. The option we have is either we sell or we refinance and hold the project, and then find a buyer later on during the year,” Ramchand was quoted saying in January.

In March, India Ratings & Research upgraded CNT’s bank loans to IND A, Outlook Stable, higher than ITNL’s rating. NHAI got AAA rating in the same report. 

CNT is the longest road tunnel in the region and cuts travel time between Jammu and Srinagar by two hours (or 30km), ITNL said in its latest annual report.

In Janaury this year, ITNL bagged the right to build the 14km long Zojila Tunnel in Jammu & Kashmir. The INR 68bn project was awarded on an EPC basis. Once completed the Zojila tunnel will overtake CNT as the region’s longest tunnelway.

Cube Highways is a road platform formed by I Squared Capital and the World Bank’s International Finance Corp. It is backed by the Abu Dhabi Investment Authority and operates 1,300 lane-kilometers of highways in India.

ITNL and I Squared didn’t respond to request for comments.