Sadbhav Engineering Ltd, a Gujarat-based infrastructure company, is looking to raise ₹1,500 crore through a qualified institutional placement (QIP) in the current quarter, said two people close to the development.
It will soon select investment bankers to run the process.
Sadbhav primarily deals with engineering and construction projects in roads, mining and irrigation. As on 30 September, it had constructed over 7,551 lane km of roads, according to the company. In the last quarter of fiscal year 2018, road projects accounted for 81% of its order book, up from 65% in the corresponding period a year ago.
“Under the hybrid annuity model (HAM), road developers also need to contribute equity to a certain extent in order to bid successfully for upcoming projects. Sadbhav is looking to tap funds through the QIP route to bid for new projects,” said the first person, requesting anonymity.
A spokesperson for Sadbhav denied the development.
HAM is a hybrid of engineering, procurement and construction (EPC) and built, operate and transfer (BOT) models. Introduced in January 2016, the National Highway Authority of India (NHAI) provides viability gap funding of 40% under the HAM model, while the balance has to be contributed by the road developer. Of the 60% contribution coming from the developers, 25% has to be through equity infusion.
The second person aware of the development said the road developer will be looking to tap the market before October to avoid uncertainty relating to investor sentiment ahead of the general elections next year.
The plan to raise money through QIP by the Ahmedabad-based company comes at a time when several road developers are accessing the capital market to raise funds. According to primary market tracker Prime Database, four road developers, including Gayatri Projects Ltd and MEP Infrastructure Developers Ltd, have raised around ₹1,100 crore since January.
A few developers have also tapped the initial public offering (IPO) market to raise funding, while others have raised money through listing of infrastructure investment trusts. Bharat Road Network Ltd and HG Infra Engineering Ltd, for instance, had floated IPOs to raise ₹600 crore and ₹462 crore, respectively, while ₹5,033 crore and ₹3,145 crore were raised through listing of IRB Invit Fund and IndInfravit Trust.
According to a note by India Ratings and Research, HAM will be the preferred mode for awarding contracts in fiscal 2019. The move is likely to spur demand for additional funds. In April, road transport and highways minister Nitin Gadkari had said that national highway construction in India had hit an all-time high of 9,829km in 2017-18, indicating that average road construction rose to 27km per day from 11km per day in the past five years. Gadkari had said that the government intends to take the figure to 40 km per day in the current fiscal.
Source: Mint