Montecarlo explores sale of nine road assets in $360 million deal

New Delhi: Ahmedabad-based Montecarlo Ltd, an engineering procurement and construction company, is exploring the sale of nine road assets in a deal expected to have an enterprise value of around $360 million (about ₹3,025 crore), said two people aware of the development.

These nine road assets, or projects, fall under the so-called hybrid annuity model, which is considered attractive due to its risk-mitigation qualities.

Even so, Montecarlo’s decision to sell its entire stakes in the nine road assets comes amid multiple project delays and a significant inventory buildup in the road sector, with several deals in play.

A recent case in point is Cube Highways emerging as the front runner to acquire the road assets of Athaang Infrastructure at an equity value of about ₹4,000 crore, as reported by Mint.

Cube Highways is one of India’s largest private operators of toll roads. Athaang Infrastructure is incubated by the government-backed quasi-sovereign National Investment and Infrastructure Fund.

Montecarlo has operations in the highway, irrigation and water, mining, energy infrastructure, and building sectors.

“The Montecarlo transaction to sell nine HAM assets is ongoing,” said one of the two people cited above, requesting anonymity.

Queries emailed to a Montecarlo spokesperson on Monday evening remained unanswered.

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The appeal of HAM

Experts say HAM projects are attractive from a risk-mitigation perspective.

Under the HAM model, a concessionaire is compensated by fixed annuity payments during the construction, operation, and maintenance phases. Also, 40% of the construction annuity is paid during construction, and the balance during the remaining concession period.

“The hybrid annuity model in the road sector has drawn interest from fund houses and InvITs (infrastructure investment trusts) due to its risk-sharing structure, where the government funds 40% of the project during construction,” said Jagannarayan Padmanabhan, senior director and global head of transport, logistics and mobility, at Crisil Ltd.

“However, some InvITs are avoiding construction risks which involve uncertainties like delays and cost overruns. These institutions prefer operational assets that offer more predictable, steady cash flows, reducing exposure to the risks tied to greenfield projects,” Padmanabhan added. “As a result, HAM remains attractive primarily for its risk mitigation, but mainly appeals to those seeking long-term income from operational assets rather than construction-phase investments.”

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Investor interest in the highway space has sustained despite the pace of highway awards slowing down. The number of highway awards in the current financial year is expected to be 8,000 km, as compared to 8,581 km in 2023-24.

The government, on its part, has front-loaded its ₹2.72 trillion capital expenditure in 2024-25 for road and highway construction.

For Montecarlo, a series of delays

As for Montecarlo, the company had 10 HAM road projects at the end of March, according to a 15 April report by India Ratings and Research. Of these, four had been completed and six were under construction, entailing a total equity commitment of ₹790 crore, of which ₹420 crore had been infused till 31 March, it said.

“The project progress of the stated EPC road project was sluggish during FY24, mainly attributed to the heavy monsoon during the year. The management has applied for extension of time,” India Ratings said.

Of Montecarlo’s six under-construction road projects, five were behind schedule at the end of March mainly because of delays in the authorities handing over the land, heavy monsoon rains, and delays in utility shifting or design finalisation, the rating agency said.

It added that Montecarlo had received an extension for three of those projects and was likely to receive an extension for the other two as well.

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