JP Associates to raise Rs 2500cr via Jaypee Infra listing
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Jaiprakash Associates-owned Jaypee Infratech is expected to file its
draft red herring prospectus (DRHP) in the next few days and is
looking at raising Rs 3,000 crore via an initial public offer (IPO).
Commenting on the issue, Executive Chairman of Jaiprakash Associates
Manoj Gaur says Jaypee Infra is building India’s biggest 165-kilometer
long expressway called the Yamuna Epressway. “We plan to dilute 15%
stake for Rs 2,500 crore in Jaypee Infra,” he says adding that the
company has a blend of offers for sale and fresh equity. The total
project cost stands at Rs 9,700 crore.
The annuity toll income for the expressly is likely to come in at Rs
800 crore in FY12 and reach Rs 3,000 crore in FY16, Gaur says. He sees
a definite surge in demand for affordable housing.
Here is a verbatim transcript of the exclusive interview with Manoj
Gaur on CNBC-TV18. Also watch the accompanying video.
Q: There has been some talk in the market that it will be a
significant issue where the offering itself could be about Rs 3,000
crore. Any benchmark valuation without getting into the pricing that
you can give us on how large this JP Infratech entity could be in
terms of how you are valuing it?
A: JP Infratech is a unique company, which is building India’s largest
expressway – 165 km long build-own-operate basis – where we have the
rights to toll for 36 years. Also it has five lands for development
all along the expressway. Out of the five lands for development
parcels, three are in National Capital Region (NCR) and each of them
is 1250 acres. So Infratech has a total project cost of about Rs 9,700
crore where equity has been invested from Jaiprakash Associates
Limited (JAL) to the extent of about Rs 1,150 crore. The entire
financial closure has been done of Rs 6,000 crore debt financing – it
lead by ICICI Bank, State Bank of India (SBI) and Axis Bank. Recently,
both the boards met – JAL, the owner company, and JP Infratech.
What has been decided is that there would be a blend of offer for sale
as well as fresh capital raising in JP Infratech. Cumulative, the
dilution would be around 15% in JP Infratech. We are looking to tap
the market for about Rs 2,500 crore.
Q: What is JP Associates’ role in JP Infratech going to be going
forward because you are putting up 5% of your 98% holding on an offer
for sale? Will you monetise your holding in JP Infratech further with
the passage of time or only with this 5% offer for sale you will be
content holding the remaining stake in JP Infratech?
A: Let me clarify that JAL, the holding company, is offering about 5%
shares, which is about 6 crore shares of JP Infratech and there would
be about 12-15% fresh capital being raised in JP Infratech. Our target
would be around Rs 2,500 crore raising from the market. As far as JAL
holding is concerned in JP Infratech, as you know JAL has been
investing on different projects like power. We also have floated a
company called JP Sports Company, which is having 1,000 hectares of
land parcel on Yamuna Expressway. This is another company where JAL
has already invested about Rs 500 crore.
This is one company which is having rights to hold Formula 1 race in
India and the first race has been planned for 2011. So with this 6
crore offer sale, for the current year, this is fine. There is no
other plan for further dilution as far as JAL share in JP Infratech is
concerned.
Q: There seems to be some ambiguity on how to value this Yamuna
Expressway project though. As you mentioned there are many moving
parts within it and the variations are between Rs 9,000 crore to Rs
14,000 crore by way of a value. How would you fit in the sum-of-parts
and what would you ascribe as a value to the Yamuna Expressway
project?
A: As far as Yamuna Expressway is concerned, one has to consider this
as an infrastructure project with a real estate being part of it and I
would like to explain this a bit more here. Yamuna Expressway, the
investment is around Rs 10,000 crore where there is a debt of Rs 6,000
crore and there is equity of about Rs 1,200 crore, real estate
accruals coming in the company. The total real estate space for this
company is around 400 million square feet spread over five locations.
If I take the first land parcel, which is at Noida owned by JP
Infratech Company – there are two more in NCR region–the first parcel
means 80 million square feet. If we take 80 million square feet, even
at Rs 3,000 per square feet on very conservative basis, that means
almost USD 6 billion of economic value of that real estate.
So this company will have two revenue streams – one from the toll
collection and another from what it will ultimately be realising
through the real estate. I see that this company in next five years to
have revenue of almost Rs 10,000 crore in the next five years on
annual basis because we will be selling almost 20 million square feet
of real estate every year from next year and that type of business
this company will have.
Q: Why did you choose not to offer more than 5% in terms of offer for
sale from JP Associates because you have fairly large capital needs
for that business as well? Why not put a bit more on the block?
A: It is very important step that this company is taking. In 2005 we
came out with offer for sale for Jaiprakash Hydro at Rs 32 per share.
As the time has proven company did well and shareholders got the
benefit. We want to make a reasonably issue size and we want that
shareholders should get benefit and then we will see because as far as
present situation is concerned all JAL requirement of investment is
been taken care of. So size of the issue is important and we will see
the pricing of the issue.
Q: Give us one clarification before we get back to JP Infratech. I
believe that you have taken an enabling provision to raise Rs 500
crore through a private placement. By when do you expect to raise that
kind of equity capital? Will it be a private placement and have you
identified a party?
A: There is some ambiguity here. Jaiprakash Associates would be
placing a commercial paper of 500 crore and that is only primarily
targeted to tap a low interest paper because it will have interest of
below 7%.
Q: You spoke about the land and we will talk more about that for JP
Infratech. Can you give us a sense of once Yamuna Expressway gets
operational, which is hopefully by the end of FY10 or start of FY11,
what is the kind of annuity toll income that one should expect?
A: First of all, I would like to state that work on entire stretch of
165 kilometers expressway is going on in a very good speed and in fact
on 67% of the earthwork is complete. I am also happy to tell you that
concreting on the package I and package III, that is, 80 kilometer
stretch has started and we are very confident and we are working on
target to start the road by December 2010. As far as the toll
collection is concerned, the initial estimate shows that in the first
year, that is, April ‘11- March ‘12, the toll collection will be
around Rs 800 crore to Rs 1,200 crore annually. But there would be a
sea change to this collection trend because National Highway Authority
of India (NHAI) is also building an Eastern Peripheral Expressway and
the type of traffic, which can get diverted or which should get
diverted, it would mean different yardsticks three-years from now.
So toll collection is going up from about Rs 800 crore to Rs 1,200
crore per annum from FY12 – as per positions today – to almost Rs
3,000 crore by FY16.
Q: Can you update us as well on what exactly the situation is in terms
of real estate sales and demand you are seeing for that Yamuna
Expressway project right now? We are just trying to gauge the appetite
and whether any initial sales have already taken place.
A: One will have to see the type of work that is going on for
expressway and once the expressway contours emerge on the landscape,
the type of activities would start taking place all along. In Yamuna
Expressway on the land parcel one we have been able to sell almost 11
million square feet. That too in last about seven-eight months. So
when I mentioned in the beginning of this interaction, we have a
target to do about 20 million annually and that means we have 20 years
from now to exhaust the total real estate potential of the Yamuna
Expressway. When we sell 20 million in this year or 15 million this
year and 20 million in next year–you will have to give two years for
the apartments and homes to get delivered.
So that type of appetite is already there and I see definite surge
with a type of home financing being made attractive and the type of
surge in economic activity is taking place. I see a good potential for
affordable housing.
Q: To get a clarification on this real estate part. You said that the
out of that 400 million square feet which can be potentially develop,
80 million square feet is the Noida region, which is average about Rs
3,000 a square feet conservatively – is the first three-four years
going to see development of the first parcel first which is 80 million
square feet? So can one expect 20 million over four years for that 80
million square feet that you are talking about and when will that
booking start or development start?
A: I will say it may not happen in four years but it will definitely
happen in six years because automatically the parcel, which is the
nearest to Delhi will get attraction first, Last week when Metro
reached Noida and there are already plans between the Delhi government
and the Delhi Metro Rail Corporation (DMRC) and the UP government to
extend the Metro upto greater Noida. So, the second parcel would also
get connected with Greater Noida.
So the first land parcels maybe not in four years but in six years. We
would be able to sell the entire one but at the same time. But we have
got to have a strategic marketing initiative to monetise the land
available in parcel two and parcel three also. I am sure there would
be some overlapping which will start taking place from next year.
Q: What will the money that JP Associates gets out of this be utilized
towards and how soon are you filing your prospectus?
A: A 6% sale may give maybe Rs 700-800 crore – it is something which
will depend on the price. But as far as work is concerned on final
Draft Red Herring Prospectus (DRHP), we are in the final stage. All
necessary approvals are in hand. We hope, if all goes well, by Monday
we will be able to file the DRHP.
Q: You are looking at a possible initial public offering (IPO) in
which month, in January possibly or even sooner?
A: I hope that market understands the potential of this company. I am
sure with the good wishes of all the first month of next year would be
a good time when the IPO can hit the market.
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