New Delhi: Ahmedabad-based Montecarlo Ltd, an engineering procurement and construction company, is considering selling nine road assets in a deal that is expected to have an enterprise value of around $360 million (approx. ₹3,025 crore), said two people aware of the development.
These nine road assets or projects are covered by a so-called hybrid annuity model, which is considered attractive due to its risk-mitigating properties.
Nevertheless, Montecarlo’s decision to sell its entire interest in nine road assets was taken in the face of numerous project delays and significant stockpiling in the road sector, with several transactions in progress.
A good example is the recent case of Cube Highways, which emerged as the favorite to acquire Athaang Infrastructure’s road assets with an equity value of approximately ₹4,000 crore, according to Mint.
Cube Highways is one of the largest private toll road operators in India. Athaang’s infrastructure incubator is the government-backed quasi-state National Investment and Infrastructure Fund.
Montecarlo operates in the highways, irrigation and water management, mining, energy infrastructure and construction sectors.
“The Montecarlo transaction to sell nine HAM assets is ongoing,” said one of the two people cited above, who asked not to be identified.
E-mailed inquiries to a Montecarlo spokesman Monday evening remained unanswered.
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HAM appeal
Experts say HAM designs are attractive from a risk-mitigation perspective.
In the HAM model, the concessionaire receives remuneration in the form of fixed lifetime fees during the construction, operation and maintenance stages. In addition, 40% of the construction rent is paid during construction and the remainder during the remaining concession period.
“The hybrid annuity model in the road sector has attracted interest from investment funds and InvITs (infrastructure investment trusts) due to its risk-sharing structure, under which the government funds 40% of the project during construction,” said Jagannarayan Padmanabhan, senior director and global head of transportation , logistics and mobility at Crisil Ltd.
“However, some InvITs avoid construction risks that come with uncertainties such as delays and cost overruns. These institutions prefer operating assets that offer more predictable, consistent cash flows, reducing exposure to greenfield project risk,” Padmanabhan added. “As a result, HAM remains attractive primarily for risk mitigation, but is attractive primarily to those seeking long-term forward income from operating assets rather than construction-stage investments.”
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Investors’ interest in motorway space remains despite the slowdown in the pace of awarding motorway contracts. The number of highway awards in the current financial year is expected to be 8,000 km compared to 8,581 km in 2023-24.
The government, for its part, has focused on its actions ₹2.72 trillion in capital expenditure in 2024-25 for road and highway construction.
A series of delays for Montecarlo
As for Montecarlo, according to an April 15 India Ratings and Research report, the company had 10 HAM road projects at the end of March. Four of them were completed and six were under construction, resulting in a total capital commitment of ₹790 crore, of which ₹It said ₹420 crore had been deposited as of March 31.
“Progress under the said EPC road project was slow in FY24, mainly due to heavy monsoons during the year. The management has applied for an extension of the deadline,” India Ratings said.
The ratings agency said that of six Montecarlo road projects under construction, five were behind schedule at the end of March, mainly due to delays in land transfers from authorities, heavy monsoon rains and delays in changing utilities or finalizing project.
She added that Montecarlo received extensions for three of those projects and will likely receive extensions for the remaining two as well.
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