Malaysia’s sovereign wealth fund Khazanah Nasional Berhad and Infrastructure Development Finance Company (IDFC) are setting up a joint venture to fund road construction in the country. After energy, road construction is one of the key areas for the government to lower the infrastructure defcit. Khazanah’s value of assets was Malaysian Ringitt (RM) 112.6 billion or about Rs 168,000 crore as of December 31. It made headlines when it pitted against India’s healthcare company Fortis Healthcare to acquire control over Singapore’s Parkway Holdings.
IDFC and Khazanah will form a joint venture with an equity share, initially, in the ratio of 80.1:19.9. The initial investment in the JV has not been disclosed. It will be dedicated to the road sector and both companies will invest in convertible instruments issued by the joint venture.
The JV will start by acquiring a 74% stake in an IDFC-subsidiary Jetpur Somnath Tollways, which is doing a 4-lane highway project in Gujarat. IDFC Projects owns a 74% stake in the special purpose vehicle at present. It will sell a 48% stake in Jetpur Somnath to the IDFC-Khazanah joint venture, and eventually the rest too.
The remaining 26% stake in Jetpur Somnath is held by Plus Expressways Berhad, a Malaysian toll expressway company. The investment by Khazanah effectively turns Jetpur Somnath into a largely Malaysian-owned and controlled company. Khazanah itself owns a 15.5% direct stake and an indirect/deemed interest of 38.5% in Plus Expressways.
The National Highways Authority of India and Jetpur Somnath had entered into a concession agreement in February 2011 to construct the Jetpur Somnath section of National Highway No 8, a 128 km stretch on a design, build, finance, operate and transfer basis. The concession period is for a 30-year period. The approximate project cost as mentioned by Plus in September 2010 was Rs 950 crore.
The paid-up capital of Jetpur Somnath was Rs 10 lakh (1 million). Plus’ recent quarterly update shows that it has given a commitment of an investment of 57 million Malaysian ringitt or about Rs 85 crore. If we assume that represented 26% of the total amount, equivalent to its share in Jetpur Somnath, IDFC’s contribution would be equivalent to about Rs 240 crore. With the formation of the new joint venture, however, its own contribution will become much lower since it owns only a 20% stake in it.