IVRCL Ltd: Some Thoughts

CMP: Rs.5.05

Photo: Indian Tollways

The Hyderabad based infrastructure player IVRCL Limited will get Rs.400 crore from the sale of three road projects (Salem Tollways Limited, Kumarapalayam Tollways and Chengapalli Tollways) -- Of this it will receive Rs.315 crore by 31 March and the balance in September 2017, according to some sources.

Though lenders are reluctant to give new loans, last year it was sanctioned a fresh non-fund credit of Rs.1,800 crore in bank guarantees and letter of credit, in addition to a cash credit limit of Rs.200 crore as part of the CDR deal.

The company has an order book of around Rs.18,000 crore.

Apart from monetising the assets, there are six more in line, it has decided to focus on realising the claims amounting to over Rs.6000 crore from various government projects. 

The company wants to utilise the new arbitration law that brings down the time limit for the settlement of a commercial dispute, for this purpose.

At a joint lenders forum meeting for IVRCL, banks had earlier decided to invoke strategic debt restructuring. Around Rs.7,500 crore worth of loans given to IVRCL has been converted into shares by bankers, including State Bank of India and IDBI Ltd, allowing them to own 51%.

SDR allows banks to convert debt into equity and make management changes if the company fails to achieve certain milestones.

Last year the company said: 

“Pursuant to provisions of Companies Act, 2013 and Sebi (Issue of Capital Disclosure Requirement) Regulations, 2009 and implementation of SDR, the company has made an allotment of 6,46,810 equity shares at a price of Rs.8.765 each, to Bank of Nova Scotia".

Those banks that hold a stake in the company are Andhra Bank ICICI Bank, Indian Overseas Bank, IDBI Bank, Canara Bank and Corporation Bank. Now this prove of Rs.8.765 somewhat forms a datum for future price discoveries.

Now that Banks have already taken control of IVRCL Ltd, the Hyderabad-based construction company and have converted loans into equity, it makes sense to find a buyer sooner rather than later.

The infrastructure fund of multi-asset manager IDFC Alternatives has been one of the most active buyers of operational road assets in India, ahead of peer investors including US-based I Squared Capital and Canada’s Brookfield Asset Management.


On the other side, Piramal Enterprises Ltd, controlled by billionaire Ajay Piramal, which said in 2014 that it was looking to buy a number of road assets, is yet to announce a deal.

The Indian infrastructure sector has an estimated capacity to absorb $1 trillion. India plans to invest almost Rs4 trillion in the next financial year in creating and upgrading infrastructure.

According to a report last year by investment bank Ambit Corporate Finance and the City of London, global pension funds and sovereign wealth funds may invest up to $50 billion in India’s infrastructure sector over the next five years.

Meanwhile, the A$127 billion (Rs6.4 trillion) Australian Government Future Fund is looking to invest in the Indian infrastructure space, including roads, telecommunications and clean energy.

Recently there were media reports that Infrastructure Leasing and Financial Services Ltd (IL&FS) has partnered with global private equity (PE) firm Lone Star to jointly invest in stressed infrastructure projects in India.

Lone Star Funds and IL&FS have collaborated to jointly invest $550 million, which could result in asset purchases of up to $2.5 billion, the companies said in a joint statement.

A interesting point to note is that on November 2008, the Maharashtra (state) PWD, then headed by former minister Chhagan Bhujbal, had proposed to widen the 20 km Sion-Panvel Highway (Mumbai -- Navi Mumbai connectivity) with a new toll naka at Kamothe (Navi Mumbai). In June 2009, a tender notice was issued and the IVRCL-Kakade Infrastructure Pvt Ltd (KIPL) joint venture—Sion-Panvel Tollways Ltd—bagged the contract by offering the lowest viability gap fund of Rs 390 crore. Now KIPL is owned by BJP MP Sanjay Kakade. So, at present IVRCL Ltd (Rs.5.05) has some Narendra Modi (BJP) connections -- both at the centre and in Andhra Pradesh, we have NDA rule.

In mid-February, Finance Minister Arun Jaitley presented his 2017 Union Budget to the Parliament where he outlined his plan for infrastructure and railways.

The funds allow state-owned Indian Railways to modernize its infrastructure and service operations, which includes laying 3,500 kilometers of new tracks in the coming year (2017-18) and feeding 7,000 stations with solar power in the medium term. Jaitley also announced a new Metro Rail Act to streamline existing laws, and allow greater private participation in construction and operation. It is to be remembered that IVRCL Ltd is also a player in the Railway sector.

India's infrastructure development is set to accelerate and meet global benchmarks even if the private sector is not in a hurry to grab the vast investment opportunities that are opening up, top cabinet ministers said at the Economic Times India Infra Summit 2017.

The government has set an ambitious target of laying roads up to 40 km per day in the country. Till February in FY16-17, about 6,500 km of roads construction has been done, seeing a growth from the previous financial year, when just 6,000 km of roads have been laid.

Therefore, we can look forward for the buy out of the stressed assets IVRCL Ltd soon. investors can therefore accumulate the scrip of IVRCL Ltd in dips, for Short term targets of Rs.8-9.