India shelves second bundle of toll roads due to lacklustre response

The government believes worsening borrowing conditions and lower traffic on the roads offered failed to attract investor interest.

The Indian government has officially shelved a bundle of eight toll roads auctioned under its toll-operate-transfer model, after the three submitted bids failed to fetch the minimum price asked by the government, an official source told Infrastructure Investor.

“The [highest offered] price was below the [government’s] expected price; it couldn’t be accepted,” a source from the National Highway Authority of India said.

The highest bidder, I Squared-backed Cube Highways, offered $650 million for the eight-road bundle in December, a bid that fell short of the $766 million the government was seeking.

The NHAI will now restructure the bundle to make it more attractive to investors, the source said.

“We will select strategic areas with roads with more traffic, and in better states,” this person added.

The second bundle included three road segments in West Bengal, an Indian state that partly stretches between Bangladesh and Nepal. The official said that the area was not attractive for investors, and pointed out that Tamil Nadu in the southern part of the country, could be a good option for better assets instead.

But the new tender may be delayed until June due to India’s upcoming general elections that is scheduled for either April or May, the source explained.

Rising borrowing costs in the market and lower traffic volume on the selected roads dampened investors’ appetite, according to the NHAI official.

The decision comes one year after Macquarie Infrastructure & Real Assets won a 30-year concession to toll and operate the first bundle of nine highways NHAI tendered, submitting  a bid of $1.5 billion – 50 percent higher than the procuring agency’s original target.

According to Rajeshwar Burla, an analyst at India’s ICRA credit rating agency, the success of this first auction “raised NHAI’s expectation for the second bundle. With the poor response for the second bid, expectations from NHAI will be more realistic going forward,” Burla told Infrastructure Investor in January.

The NHAI is aiming to raise $20 billion through an asset recycling programme comprising more than 100 domestic roads.

Cube Highways which was jointly launched by I Squared Capital and the International Finance Corporation, did not respond to a request for comment.