Bharat Highways InvIT IPO Review

Bharat Highways InvIT is an infrastructure investment trust established to acquire, manage and invest in a portfolio of infrastructure assets across sectors and/or securities of companies engaged in the infrastructure sector, carry on the activities of an infrastructure investment trust.Bharat Highways InvIT is a SEBI registered infrastructure investment trust, having a portfolio of seven road assets, all operating on a hybrid annuity model (HAM) basis,. These assets are owned and operated by the project SPVs, which are currently wholly owned by G R Infraprojects Limited (GRIL) (an Associate of the Investment Manager). Bharat Highways InvIT issue size is Rs 2,500.00 crores. The issue is entirely a fresh issue.

IPO details

  • Bharat Highways Infrastructure Investment Trust InvIT IPO is open from Feb 28, 2024 to March 1, 2024
  • Issue size: ₹2,500.00 Cr
  • Net Issue Size: Rs. 1,835 cr
  • Allocation: Minimum 25% for HNIs, maximum 75% for institutions.
  • Price band: Rs. 98-100
  • Bid Lot: 150 Units and in multiples
  • Lead managers ICICI Securities Limited, Axis Capital Limited, HDFC Bank Limited and IIFL Securities Limited.
  • Registrar: KFin Technologies Limited.

About Infrastructure Investment Trusts(InvIT)

Infrastructure Investment Trusts(InvIT)  are quasi debt instruments, akin to mutual funds which are regulated  by SEBI  to enable investments into the infra sector by pooling together money from several individual investors for direct investment in infrastructure . In contrast to earlier methods like Infrastructure Bonds, these instruments provide a means for direct investment by individual investors in infrastructure mainly in revenue generating or completed projects. In the process they aim to return a portion of the income, after meeting expenses to unit holders of InvITs. This framework enables infrastructure developers to monetize completed assets.

About Bharat Highways Infrastructure Investment Trust InvIT

  • They are an infrastructure investment trust established to acquire, manage and invest in a portfolio of infrastructure assets in India and to carry on the activities of an infrastructure investment trust, as permissible under the SEBI InvIT Regulations. They were settled by way of the Original Trust Deed, by GRIL (the Settlor), and registered as an infrastructure investment trust with SEBI on August 3, 2022 .
  • IDBI Trusteeship Services Limited is the Trustee of the InvIT.
  • GR Highways Investment Manager Private Limited has been appointed as the Investment Manager
  • Aadharshila Infratech Private Limited has been appointed as the Sponsor.
  • The Sponsor is engaged in testing services in the field of transportation engineering and has expertise in NSV survey, FWD survey, pavement design of roads and airports, physical and chemical testing of soil, lime, cement, road roughness testing, concrete and bituminous mix design of road projects. NMHPL, the Associate of the Sponsor is a road engineering, procurement, and construction company, with experience in design and construction of various road/highway projects. NMHPL has over six years of experience in the execution of infrastructure projects since 2017.
  • Their initial portfolio assets consist of seven road assets, all operating on HAM basis, in the states of Punjab, Gujarat, Andhra Pradesh, Maharashtra and Uttar Pradesh. These roads are operated and maintained pursuant to concession rights granted by the NHAI and are owned and operated by the Project SPVs, which are currently wholly owned by GRIL.
Name of the InvIT Asset
GR Phagwara Expressway Limited (“GPEL”)
Porbandar Dwarka Expressway Private Limited (“PDEPL”)
GR Gundugolanu Devarapalli Highway Private Limited (“GDHPL”)
GR Akkalkot Solapur Highway Private Limited (“GASHPL”)
Varanasi Sangam Expressway Private Limited (“VSEPL”)
GR Sangli Solapur Highway Private Limited (“GSSHPL”)
GR-Dwarka Devariya Highway Private Limited (“GDDHPL”)

Bharat Highways InvIT IPO:Financials

The revenue from operations of the SPV Group for the financial year ended March 2023 was at Rs 1,537 crore, down marginally from Rs 1,600 crore a year earlier. 

Bharat Highways InvIT earned a net profit of Rs. 101.4 crores on a total income of Rs. 388.5 crores in H1FY24 and the financial indebtedness of the trust as of February 01, 2024 stood at Rs. 3,568.2 crores.

Bharat Highways InvIT IPO: anchor issue

Bharat Highways InvIT, garnered ₹825.97 crore from anchor investors ahead of its initial public offering (IPO) that opens for subscription on February 28, 2024. Out of the total allocation to the anchor investors, 6,10,00,350 units were allocated to 11 domestic mutual funds through a total of 27 schemes amounting to ₹610 crore, which is around 74% of the total anchor book size. The anchor investors include ICICI Prudential Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund, Quant Mutual Fund, HDFC Life Insurance, Nippon India Mutual Fund, Axis MF, Aditya Birla Mutual Fund, UTI Mutual Fund, Max Life Insurance, Baroda BNP Mutual Fund, Reliance General Insurance and DSP Mutual Fund etc.

Salient Points & Assessment: Bharat Highways InvIT IPO

  • All of the InvIT assets ( seven road projects) are HAM projects awarded by NHAI and its revenue stream is primarily through annuity payments from the NHAI.
  • The HAM combines the features of EPC and BOT (Build, Operate, and Transfer) models. Under this model, the concessionaire receives 40% of the project cost from the authority during the construction period. The concessionaire is responsible for designing, building, financing (60% of the total project cost), operating and transferring the project.
  • NHAI is required to pay interest on the reducing balance of the completion cost ( 60% of the BPC) over the operation period at the rate of 3% above the RBI bank rate. Thus increase in the interest payable on loans with floating interest rates by InvIT will be offset by increase in interest on reducing balance of completion cost.
  • Under HAM model, the toll is collected by the authorities. The amount financed by the concessionaire is to be recovered from the authority through semi-annual payments.
  • The InvIT is a newly settled trust and does not have an established operating history, which makes it difficult to accurately assess future growth prospects and possible income distributions.
  • Bharat Highways InvIT has entered into a ROFO Agreement with GRIL, pursuant to which GRIL granted a right of first offer to the InvIT to acquire certain other assets owned and developed by GRIL
  • The InvIT received ratings of ‘Provisional CRISIL AAA/Stable (Reaffirmed)’ from Crisil Ratings Limited on November 27, 2023, and ‘Provisional CARE AAA; Stable’ from CARE Ratings Limited on November 30, 2023 for its long-term bank facilities worth ₹3,000 crore and ‘Provisional IND AAA/Stable’ from India Ratings and Research on December 8, 2023 for its proposed rupee term loan aggregating to ₹3,000 crore.
  • The InvIT intends to use net proceeds from the IPO for providing loans to the project special purpose vehicles (SPVs) for repayment, in part or in full, of their respective outstanding loans (including any accrued interest and prepayment penalty) and for general purposes.
  • In terms of the SEBI InvIT Regulations, the Project SPVs shall distribute not less than 90% of the net distributable cash flows to the InvIT, proportionate to the InvIT’s holding in the Project SPVs.
  • Each Project SPV has entered into a long-term Concession Agreement with the NHAI, with agreement having a residual operations period of between 11.1 and 13.5 years as of January 31, 2024,
  • On a collective basis, the InvIT assets had a weighted average residual project life of approximately 12 years as of January 31, 2024.
  • This ensures long-term cash flows to the Bharat InvIT.
  • Peers:
    • Bharat Highways InvIT IPO price is being offered at about 30% discount to fair value. Peer IRB Invit is quoting at 33% discount against net asset value (NAV) of Rs. 100.6 as of 30.9.23). IRB InvIT led to capital erosion for investors as it is quoting at Rs. 68.
    • IRB InvIT’s yield at current price is 11.8%.
  • Bharat InvIT has informally guided for distribution per unit (DPU) of about Rs. 11.25-11.50, annually, which will be in quarterly installments.
  • .Annual return from Bharat invIT is estimated at around 9-9.3% Post tax , as 55% distribution will be in the form of interest and dividend (taxable) while remaining45%, will be distributed towards capital repayment & will be tax-free in hands of investors.
  • I intend to apply in Bharat Highways InvIT IPO subject to funds in my hand as in my view it may provide returns better than fixed deposit , REITs etc. and is more Tax efficient. This is more in class of Debt or Quasi Debt instrument. However their is overhang of poor IRB Invit listing (many years back) as well on the IPO.

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