Engineering major Larsen & Toubro is exploring an option to raise between Rs 2,000 crore - Rs 2,500 crore by clubbing operational road projects of its infrastructure development arm L&T IDPL into a separate entity which could be listed overseas through a business trust model. This proposal was separately mooted by a European as well as a Japanese bank to the company. This new idea is based on the increasing popularity of the model amongst global financial investors who are scouting for high quality operating yield assets in infrastructure, real estate and renewable energy.
Currently L&T IDPL has a portfolio of 18 roads, 10 of which are operational. All the projects are housed under individual special purpose vehicles (SPVs). The total project outlay for the road projects is Rs 21,600 crore. L&T is among the top two road developers in the country. Interestingly, the trust proposal has come at a time when L&T IDPL is already in advanced negotiations with a clutch of sovereign wealth funds, pension funds and long only investors to raise up to $500 million by diluting 15-20 per cent at an initial equity valuation in excess of $2 billion.
Abu Dhabi-headquartered Mubadala Development Corporation and Khazannah, the investment vehicle of the government of Malaysia and a global pension fund are among the potential suitors. Morgan Stanley has already been advising L&T IDPL in those live negotiations.