With roads cleared, SMS to exit project.

SMS Shivnath Infrastructure (SMSSIL) — one of the first road projects awarded on the build, operate and transfer (BOT) model by National Highways Authority of India (NHAI) in 1997 — will change hands soon.

Sources familiar with the development told FE IDFC Alternatives would be acquiring a 51% stake in the project from Nagpur-based SMS Infrastructure’s special purpose vehicle SMSSIL.

The 51% stake of SMSSIL is valued at about Rs 100 crore, sources said. Given the debt of close to Rs 190 crore, the enterprise value for the project works out to Rs 400 crore. The initial cost of the project was Rs 250 crore.

In October 2007, the roads developer had sold a 48.4% stake in the project to IDFC Project Equity. SMSSIL owns, operates and maintains an 18.4-km four-lane road on National Highway 6, which serves as a bypass to the city of Durg in Chhattisgarh. The concession awarded by NHAI is valid until 2031.

Anand Sancheti, managing director of SMS Infrastructure, told FE that the company is willing to divest its entire stake in the project. However, he declined to comment on talks with IDFC.
“We had sold a partial stake to IDFC in 2007, as complete exit from the project was not allowed then. Now, with ministry of roads permitting road developers to divest 100% equity in road projects, we are planning to exit the project.”

An email sent to IDFC Alternatives remained unanswered at the time of going to press.
Ratings firm Crisil upgraded SMSSIL’s long-term bank loans of Rs 200 crore to BBB+ in January. Crisil said that there has been a substantial increase in cash accruals generation in the project driven by traffic growth. The widening of the project from two-lanes to four was complete in the current financial year, without the company incurring major cost overruns and within the original debt quantum envisaged for the project.

According to Crisil, the project has witnessed a 11% year-on-year growth in traffic in April-November 2015 as result of the widening of the project road. “It is expected to continue to result in moderate traffic growth at about 10% annually, resulting in an increase in the cash accruals. The company has a healthy debt service coverage ratio, which is expected in the range of 1.2 to 1.4 times over the medium term,” Crisil noted.
SMSSIL registered a 28% y-o-y increase in its net profit to Rs 16.2 crore in 2014-2015, while net sales surged over 10% y-o-y in the same period.

The sale of road projects has again gathered steam after a continued improvement in road traffic numbers, and positive sentiments towards the growth of the economy. The toll collections in October-December 2015 rose 11% over the corresponding period a year ago, which was primarily on the back of rising traffic — both for trucks and cars — rather than a spike in the toll rate. In fact, the growth that had begun in June has continued through to December.

This brings in good news for developers starved for cash, and looking to churn their roads portfolio to primarily reduce debt. In just the last one month, NCC sold two of its road projects to I Squared Capital-backed Cube Highways and IDFC Alternatives.
However, given the distress, the pace perhaps has to be faster than what has been seen so far. Till June 2015, road developers have made a combined Rs 800 crore from the sales, after which there were no deals reported. At the last count, there were probably 200 road projects — nearly half of the highway ventures in the public-private partnership mode — that were on the block. Interestingly, some Rs 60,000 crore is blocked in 200 road projects, several of which are no longer considered viable.

Financial Express