Essel Ludhiana Talwandi Toll Roads Private Limited

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In December 2010, the National Highway Authority of India (NHAI) awarded a 29 year concession (including construction period of 910 days) to Essel Group for the strengthening,improvement, four-laning, operation and maintenance of 78kms (from KM92.000 to KM 170.000) of Ludhiana to Talwandi section of National Highway-95 (NH-95) in the state of Punjab. Under the contract, the consortium was responsible for the design, construction, finance, operation and maintenance and strengthening of the existing 2-lane highway to a 4-lane highway with paved shoulders. The scope included strengthening & maintenance of existing carriageway including construction of new pavement, rehabilitation of existing pavement, construction and/or rehabilitation of major and minor bridges, culverts, service roads, road intersections, interchanges, drains, etc.The expansion project,part of National Highway Development Project Phase -III, was expected to expedite the improvement of infrastructure in the state. Essel Group, through its subsidiaries Essel Infraprojects Limited (74% equity) and Pan India Networks Limited (26% equity), established a special purpose vehicle, Essel Ludhiana Talwandi Toll Roads Private Limited (ELTL), to implement the project. The SPV won the tender through competitive bidding, conducted by NHAI,by quoting the lowest upfront subsidy from NHAI of US$0.38mn (INR 18mn @47 INR/USD).Under the contract, the SPV was to recover the capital costs and operating costs including returns through tolling during the term of concession. ELTL has entered into an EPC contract with PINL for construction of the road for an estimated contract value of INR 5942mn including an escalation of five percent y-o-y upto the date of COD. The concession agreement was signed on 20th January 2011. The project attained financial closure on 19th July 2011. The grant/debt/equity ratio of the project was 0.2/74.4/25.4. The estimated capital cost of the project at the time of financial closure was US$ 156.5mn (INR 7358mn @ 47 INR/USD) million. Apart from NHAI grant, financing comprised INR 5470mn 13year term loan,and INR 1870mn sponsor equity.The debt was solely arranged by Punjab National Bank.The INR 5470mn term loan had a subordinate debt component of INR 470mn from IIFCL. EIL & PINL had extended a joint & several sponsor support undertaking towards lender of ELTL to bring in additional funds to meet any cash flow shortfall towards ELTL’s debt obligations throughout the tenure of the loan and cover cash flow shortfall arising out of cost overrun.Further the sponsors (EIL & PINL) had given joint & severally undertaking for maintaining a DSCR of 1.00 for the first six years of the operation.To provide cushion for the debt payments against variability in the revenue, the Loan Agreement required ELTL to maintain a DSRA of INR 150mn (in form of Bank Guarantee) for entire loan period. However, for the first six years after operations, ELTL would maintain a BG of INR 480mn. Construction on the project began in July 2011 and was expected to be completed by January 2014.As on February 2012, ELTL had received most of the approvals required for the execution of the project except for the approval of design of one Railway-over-bridge. ELTL planned to apply for the approval once the appointed date (due date of start of the concession period) was crystallised.The appointed date crystallization was pending as NHAI was in the process of clearing the land and once the same was done NHAI would give ‘right of way’ to ELTL.