GMR Kishangarh Udaipur Ahmedabad Expressway Limited

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In September 2011, the National Highway Authority of India (NHAI) awarded a 26 year concession (including construction period of 3 years) to GMR Infrastructure Limited for the strengthening, improvement, six-laning, operation and maintenance, and tolling of 555.5kms of Kishangarh-Udaipur-Ahmedabad section of National Highway-76,79,79A,and 8 and including New Udaipur Bypass from Km 236.00 to Km 566.45, in the states of Rajasthan and Gujarat. Under the contract, GMR was responsible for the design, construction, finance, operation and maintenance and strengthening of the existing 4-lane highway to a 6-lane highway with paved shoulders and 2 service land extensions. The scope included 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.This project was the first and the longest mega highway project of the country, part of National Highway Development Project Phase-V and would ease traffic congestion and will reduce the time and cost of travel between Kishangarh and Ahmedabad. It would also increase the employment potential for the local laborers and also development of economic activities in Gujarat and Rajasthan. The Project road which will connect Vadodara and Mumbai in the West and Delhi in the East would carry predominantly long distance freight traffic along Delhi-Mumbai Industrial Corridor and was expected to offer high growth potential for commercial traffic. GMR Infrastructure Limited established a special purpose vehicle, GMR Kishangarh Udaipur Ahmedabad Expressway Limited to implement the project. The SPV won the tender through international competitive bidding, conducted by NHAI, by quoting the highest premium payment to NHAI. There were 11 pre-qualified bidders for the project out of which 7 offered their final bids. The SPV would pay NHAI a sum of of US$127.2mn (INR 6360mn @50 INR/USD) in the first year of operations with 5% increase in each subsequent year (This amounted to an NPV payout of US$ 1838.5mn over the concession period at a discount rate of 10%). The L2 Bidder had quoted a premium payment of about INR 5200mn. Under the contract, the SPV was to recover the capital costs and operating costs including returns through tolling during the term of concession. The concession agreement was signed on 30th November 2011. The project attained financial closure on 24th May 2012.The debt/equity ratio of the project was 70/30.The estimated capital cost of the project at the time of financial closure was US$ 1542mn (INR 77100mn @ 50 INR/USD) million.Financing comprised of 14year 10month term loan of US$ 1080mn (INR 54000mn @50INR/USD) and sponsor equity of US$ 462mn (INR 23100mn). The INR 54000mn term loan had a grace period of 10 months and repayment schedule of 45 quarterly instalments.The loan was priced at an interest rate of 12%. The lead arranger was IDBI Bank and other participating banks included Central Bank of India (INR4000mn) and India Infrastructure Finance Co Ltd (INR4000mn). The construction for the project and toll collection on existing highway was expected to start in September 2012 (Appointed Date) after receiving a pending environmental clearance, and was expecting to be completed by August 2015. On 7th January 2013 GMR had cancelled this concession citing delays in securing mandatory environmental clearances, including right of way on the part of NHAI (mandated as per the concession agreement). NHAI had not yet accepted the unilateral cancellation of the concession and held that aggressive bidding (US$6360mn per annum is the highest premium ever quoted for any NHAI road project so far!) in the road sector and developers’ growing debt, coupled with banks tightening lending for road projects has led to GMR realizing that the project had become nonviable. GMR's initial expectation was to be able to earn at least 18% internal rate of return on this p