Cube Highways snaps up three greenfield assets under new development model

The government will assume 40% of the construction costs, while I Squared's Indian roads platform and Indian developer KNRC will assume the remaining 60%.

Cube Highways, I Squared Capital’s India-focused roads platform, has signed a deal with Indian developer KNRC to build and acquire three new roads in the country under a new hybrid EPC-annuity model.

According to documents KNRC submitted to India’s National Stock Exchange, Cube Highways has already acquired a 49 percent stake in the three projects for 1.4 billion Indian Rupees ($19.6 million; €17.3 million). The Singapore-based firm will acquire the remaining equity in two stages: half of it once the project starts commercial operations and the rest two years later.

According to KNRC estimates, the remaining equity could be valued at 2.6 billion rupees after the completion of the project.

“[Cube Highways] was enthusiastic despite the project being in a pre-construction stage, which is not that usual among investors,” Venkata Ram Rao, KNRC’s general manager, finance, told Infrastructure Investor.

Under the new hybrid model, the Indian government will finance 40 percent of the construction, while the remaining 60 percent will be covered by the developer. The model helps spread development risk between the executive and the equity holders, KNRC said.

“It’s a very attractive model, thanks to the availability of the land and the 40 percent grant from the government” Ram Rao said.

Cube Highways expects a return of 14.75 percent, according to KNRC.

Two of the three projects are located in the state of Tamil Nadu in Southeast India spanning 38.7 and 31.5 kilometres, respectively. The third and largest project of 61.1 kilometres will be built in Andhra Pradesh, the eastern part of the country. The concession time of the three projects ranges between 17 and 17.5 years per project.

The roads are expected to become operational in 2021.

Cube Highways did not respond to a request for comment.

Established in 2014 by New York-based infrastructure investment firm I Squared Capital and the World Bank’s International Finance Corporation, Cube Highways’ portfolio comprised nearly 1,300 kilometres of toll roads in the country as at December 2017. Japanese trading house Mitsubishi and the Abu Dhabi Investment Authority have acquired minority stakes in the platform in recent years.