NIIF, Canadian funds in talks to buy IDFC roads arm

Global pension funds Canada Pension Plan Investment Board (CPPIB) and Caisse de dépôt et placement du Québec (CDPQ), besides National Investment and Infrastructure Fund (NIIF), are in independent talks to acquire IDFC Alternatives’ Highway Concessions One that houses seven operating roads, for around $700 million, said two persons with direct knowledge of the plan.

“CPPIB, CDPQ and India’s sovereign fund NIIF have submitted their initial term sheets and are currently carrying out due diligence,” said one of the persons.

Last year, US-based Global Infrastructure Partners (GIP) purchased IDFC Alternatives’ infrastructure investment business. As part of its realignment exercise, GIP has decided to monetise its stake in the seven road projects it holds under the Highway Concessions One vehicle.


Infrastructure funds typically invest in early-stage roads projects with higher execution risk, exiting as toll traffic picks up. They sell it to pension funds as its investors seek annuity returns for long tenures.

According to the company website, these projects include five toll roads and two annuity roads across seven states— Ulundurpet Expressways in Tamil Nadu, Nirmal BOT in Telangana, Dewas Bhopal Corridor in Madhya Pradesh, Bangalore Elevated Tollway in Karnataka, Godhra Expressways in Gujarat, Jodhpur Pali Expressway in Rajasthan and Shillong Expressway in Meghalaya.

The 472-km roads network fetched Rs 620 crore in revenues for the financial year ending March 31, 2018, the website says. Highway Concessions One’s non-road platforms include renewable energy, telecom towers and rail freight terminals.

GIP had mandated investment bank Citigroup to scout for buyers.

The portfolio, with a book value of $200 million, is expected to fetch IDFC a whopping premium of about $700 million, sources said.

Unlike many early investors who lost out due to execution and regulatory hurdles, most of the IDFC road assets operate with longer concessional agreement and pay dividends. “Their portfolio is in better shape than most of the other road assets up for sale and the interest is expected to be higher,” said the second person involved in the deal.

In an emailed response, a spokesperson for IDFC said it would not comment on market speculation. Spokespersons for CDPQ and CPPIB declined to comment. NIIF did not respond to emailed queries.

According to an October 2018 report by Indian Brand Equity Foundation, India has the one of largest road networks, spanning 5.5 million km. This network transports 64.5% of all goods in the country and 90% of India’s total passenger traffic uses roads to commute.

Though road projects have a long gestation period, something that infrastructure and traditional private equity funds shy away, several initiatives have helped attract interest.

The government introduced business-friendly models such as hybrid annuity, wherein it funds 40% of the project cost.

The government also identified 75 operational highways to be sold through toll-operate-transfer (TOT) mode. According to analysts, these projects have high internal rates of return. In the first TOT tranche, the government collected Rs 9,680 crore.

Lately, the pace of construction has improved. Between FY14 and FY18, road construction more than doubled to a little over 10,000 km as have private equity deals in the past 10 years, to eight. Value per deal has gone up to $228.3 million, from $17.1 million in 2008.