Strong track record

“We intend to leverage the experience and expertise of our Sponsor to gain a competitive advantage within the road infrastructure industry,” says Satnaliwala. Drawing upon the depth of experience, Gawar Construction, the Sponsor, has established a strong track record of developing, operating, and managing large and complex road and highway projects.

“The InvIT will be managed by qualified personnel of the Investment Manager, who has a strong management team with extensive experience, in-depth understanding, and a proven track record of performance in the road and highways sector. The board of directors and key managerial personnel have a cumulative experience of more than 30 years in various sectors, including the road and highways sector, and bring expertise in the areas of infrastructure, fintech, finance and accounting, and regulatory compliance,” says Satnaliwala.

“We believe this will be key to the execution of our growth strategies. Some of Gawar’s projects include the Kiratpur project, which connects Shimla and Mandi, significantly reducing travel time between the two cities; the Hardiya project, connecting Patna and Ranchi, providing substantial commercial and business benefits to both states; the Khajuwala project, which is strategically important, aiding the movement of the armed forces; and the Mumbai Metro Rail project, which is estimated to reduce traffic congestion in the metropolitan city,”he emphasises. 

“We believe that with the execution capabilities of the sponsor, constructing a smoother and more uniform pavement surface would significantly reduce maintenance costs and time. Additionally, the independent engineers of the Initial Portfolio Assets have not highlighted any operation and maintenance flaws in the Initial Portfolio Assets in the past, and the maintenance activities have been largely undertaken in the ordinary course,” says Yogesh Mahajan, CEO of the Sponsor.

The NHAI hybrid annuity projects provide a natural hedge against the risk of adverse interest rate movements. In addition to the annuity payments due under the respective Concession Agreements during the operational period, the NHAI is required to pay interest on the reducing balance of the completion cost (equivalent to 60 per cent of the Bid Project Cost) throughout the operational period at the rate of 3 per cent above the RBI Bank Rate.

“Accordingly, any increase in the interest payable on loans with floating interest rates by the Trust due to an increase in interest rates gets offset by the increased revenues as a result of the increase in interest on the reducing balance of the completion cost. This structure of the concession agreements effectively mitigates the interest rate risk to the Project SPVs and provides greater financial predictability and stability to the Trust investors,” says Amit Kumar, CFO of Capital Infra Trust.

Satnaliwala further states that the Trust’s total outstanding consolidated net debt, after full utilisation of the offer proceeds, will be within the regulatory requirement of 49 per cent of the value of the Initial Portfolio Assets upon completion of the Offer (net of cash and cash equivalents), as specified under the SEBI InvIT Regulations.

“We will seek to optimise our debt and equity mix in such a manner that the aggregate consolidated borrowings and deferred payments of the Trust, net of cash and cash equivalents, do not exceed 70 per cent of the value of the Initial Portfolio Assets at any time, subject to the approval of the  unit holders and in accordance with the SEBI InvIT Regulations,” explains Satnaliwala.

Going to the market

Meanwhile, Capital Infra Trust is planning to go public, having filed its offer document with SEBI, intending to raise an aggregate amount of Rs1,600 crore via an issue of units to the public. The IPO comprises a fresh issue of units aggregating up to Rs1,200 crore and an offer for sale of up to Rs400 crore by Gawar Construction Limited. The issue will be made through the book-building process, wherein 75 per cent, excluding the strategic investor portion, will be available to institutional investors and 25 per cent to non-institutional investors.

The net proceeds are proposed to be utilised towards providing loans to the project SPVs for repayment in part or in full of their respective outstanding loans and for general purposes. The Units are proposed to be listed on the NSE and BSE. The Sponsor will subscribe to a minimum of 15 per cent of the total post-issue unit capital of the InvIT in order to comply with the sponsor lock-in requirements. The Trustee and Investment Manager for the issue are Axis Trustee Services Limited and Gawar Investment Manager Private Limited, respectively.

Gawar Construction founder and promoter Rakesh Kumar, who is a first-generation entrepreneur, hails from Hisar. With a focus on execution and timely delivery, the company has achieved a top line of more than Rs7,000 crore as of 31 March, 2024. Gawar wants to focus primarily on the EPC business and will create assets that can be monetised through InvIT. “The focus of the InvIT will be only on NHAI Road Assets,” says Satnaliwala.