ITNL, the highways subsidiary of IL&FS, is set to raise $100 million or 630 million reminbi, through a yuan-denominated bond issue. The issue may be carried out at the Hong Kong Stock Exchange in January.
The money raised through the issue would be used to fund ITNL’s international projects. IL&FS Transportation Networks recently announced its plan to acquire 49 per cent stake in a Chinese toll road company. The acquisition is estimated at $160 million.
“We had planned for a RMB bond issue much before the acquisition, and this will be used to fund the buyout,” said ITNL chief executive, K Ramchand. The company is betting on the fact that many banks and institutions are sitting on yuan deposits, and this could help it find many subscribers for the bond issue.
Last month, IDBI bank had chose the same route to raise RMB 650 million (around $102 million), by issuing three-year ‘dim sum’ bonds to investors in Hong Kong and Singapore.
ITNL would raise the remaining $60 million required for the acquisition from Indian banks based abroad. The Chongqing Expressway Group holds 51 per cent stake in the project. ITNL had bought stake from Chongqing state-owned Assets Supervision and Administration Commission of Chongqing, which had exited the project.
The Chongqing Yu He Expressway is 58 kilometres long and has toll road concessions till June 2032. The road has been operational for the last nine years. “We expect a healthy equity return from the company, without assuming any rise in toll rates. With an increase, it would be even more,” said Ramchand.
The road records 35,000 vehicles every day and this is estimated to grow at 12 per cent per year.
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“The strategic location of the Yu He Expressway, coupled with the rapid motor vehicle ownership growth in the region and the regional development initiatives of the federal government, has led to a stable and passenger vehicle-centric revenue model,” ITNL said in a press release.
The company said this acquisition was aimed at consolidating its current asset portfolio through inorganic growth. This, the company said, would provide the opportunity to leverage global capital markets.