Project Appraisal

Larsen & Toubro

Breakthrough Project
The Coimbatore Bypass Road Project
The Coimbatore Bypass was the first road project to be implemented in South India on BOT1 (build, operate and transfer) basis. The project was a pioneering initiative, which incorporated private sector participation and levy of toll on users to ensure sustainability in the long run. The road ran between Neelambur on the Salem side of NH-47 Tamilnadu and in Kerala2, Madukkarai on the Palghat side.

The project involved construction of a 28-km long two-lane bypass road, the 32.2m new Athupalam bridge across the river Noyal, the railway overbridge at Chettipalayam Tamilnadu and the maintenance of the old bridge at Athupalam, all in the state of Tamilnadu. Larsen & Toubro (L&T)3was authorized to collect and retain the fee from users of the new and old Athupalam bridges. The bypass was expected to ease the traffic congestion in Coimbatore city, Tamilnadu and the Salem-Cochin national highway running between Tamilnadu and Kerala. The shippers, mostly export oriented units relying on the Cochin port for shipments, were other major beneficiaries as transportation time could be saved using the new road.
Construction was started in January 1998 and completed in 22 months time. The Athupalam bridge was opened for traffic in December 1998 and the bypass became operative from January19, 2000. The project cost was about Rs.1.04 bn. The project concession period was for 12 years, and was expected to set a precedent for assessment of traffic risk patterns in the country for toll-based roads.
L&T set up a special purpose vehicle (SPV) - L&T Transportation Infrastructure Ltd. (LTTIL), to implement the project. L&T held 100% equity in LTTIL. LTTIL implemented the project on BOT basis, with the revenue accruing directly to it. The project was constructed by L&T-ECC (Engineering Construction Corporation) group, the largest construction organization in India. L&T-Ramboll Consulting Engineers, a joint venture between L&T and Ramboll of Denmark, was employed for quality control supervision and review of the critical pavement design. The project was financed by share capital of Rs 416 mn and term loan of Rs 620 mn, with a debt-equity ratio of 1.5:1. As per the agreement with the Tamilnadu government, L&T had to hold a minimum equity of 26% at the end of 30 years.
Financing the project: use of innovative financial instruments
The debt financing was done by State Bank of India (SBI), L&T Finance, Housing and Urban Development Corporation (HUDCO), Housing Development Finance Corporation (HDFC), and Industrial Development Bank of India (IDBI). IDBI had sanctioned Rs.300 mn for the project in the form of infrastructure bonds. The loan was given in two tranches of Rs.150 mn each at 15% interest each. Principal repayment was to begin from the eighth year onwards. SBI loaned Rs.300 mn to the project. Infrastructure Development Finance Corporation (IDFC) had structured a "liquidity support" arrangement to help SBI in emergency situation. This support enabled SBI to approach IDFC for refinancing in case it failed to raise the money from other sources. For IDFC, liquidity support was different from the take-out financing7 since it was lending on condition that the bank was unable to raise the money. Moreover, IDFC would not take the project risk even if it lends to the bank. IDFC would only be carrying the bank risk as it had given the money to the bank and not the SPV.
Take out financing:
A take-out financing agreement involves three parties - in this case, IDFC, SBI (or a participating bank), and the project company. The debt funds were provided by SBI for five years at the end of which SBI had the option to either continue or call back the principal. IDFC at that point would take-out SBI for the principal amount of the loan. The project companies therefore were able to avail themselves of longer tenure funds of over 10 years. Banks could assume full credit risk, partial credit risk or no credit risk in the initial period, with the variable being the interest premium. In this structure, both the bank and the IDFC would be able to participate in the credit risk for principal and interest respectively. This structure could enhance the flow of investments from commercial banks to the infrastructure projects. The other projects to be financed through takeout financing were Bharati Telenet, and Narmada Bridge in Gujarat.
Revenue Generation & savings from project
L&T pointed out that the project helped vehicles save fuel and vehicle operating costs due to reduction of distance by 2.5 km and free flow traffic, besides time. Other benefits to the bypass users included less pollution, pleasant drive, good wayside amenities and lastly, safety.

L&T gave special emphasis to safety aspect of the road. Crash barriers were provided on the high embankment of the road, along with thermo plastic road markings. Installation of traffic signals at major junctions & speed breakers.
Toll Charges for Using the Coimbatore Bypass Road
Type of Vehicle Toll Charged (Rs.)
Car, jeep & van 19
Light Commercial Vehicles 28
Heavy commercial vehicles 56
Multi-axle vehicles 84

Toll Charges for Using the Old Athupalam Bridge
Type of Vehicle Toll Charged (Rs.)
Car, jeep & van 5
Light Commercial Vehicles 15
Heavy commercial vehicles 15
Multi-axle vehicles 2
Source:ICMR

Upcoming Project
Kattupalli Shipyard cum Captive Port Complex
The Kattupalli Shipyard cum Captive Port Complex is a mega shipyard project at Kattupalli village near Ennore, Chennai. It is being setup jointly by TIDCO and Larsen and Toubro Ltd in two phases.
Engineering components hub
When fully completed, it will be the largest shipyard in Asia.When it becomes operational, the shipyard will become a nucleus for heavy engineering industry (for fabrications and components manufacturing). This would make Chennai another hub (for engineering components) like auto ancillary and electronic hardware hubs. The project is being implemented in two phases with total investment of about INR 4675 crores. In Phase I (2009-11), INR 3050 crores will be invested while the rest in Phase II (2012-15). MoU has been signed and the project has commenced.
Proposed Facilities
The Integrated shipyard complex will have the following facilities.
1)Commercial ship building including Very Large Cargo Carriers; Specialized cargo ships for Liquid / Gas transportation and Cruise vessels
2)Building of Defense ships including Submarines
3)Off-shore Platforms & Floating Production cum Storage Facility for oil & gas sector
4)Refitting and re-engineering of commercial and defence ships
5)Heavy engineering fabrication and components production for ship building.
L&T has scaled down its initial investment plan for the ship-building yard and minor port complex in Ennore, north Chennai. It had planned to invest Rs 2,500 crore in the first phase on the project, in which the Tamil Nadu Industrial Development Corporation (TIDCO) will have a 3% equity stake.

L&T will now invest only Rs 1, 500 crore in the this phase. The whole project, to come up over a land area of 1,100 acres, will cost Rs 5,000 crore. The project has been approved in principle as a heavy engineering sector (shipyard) SEZ by the Centre.

L&T has also decided to manufacture defence vehicles and not commercial vehicles in this yard.
L&T is already receiving business for the yard. In March, the firm said it had won a Rs977 crore contract from the defence ministry for the design and construction of 36 high-speed interceptor boats for the Indian Coast Guard.
The complex will have facilities for building vessels for the defence sector, commercial ships, including oil super tankers, specialized cargo ships for liquid/gas transportation, and cruise vessels, L&T chairman A.M. Naik had said earlier.
It will also have the capability for building offshore platforms and floating production-cum-storage facilities for the oil and gas sector.

Derivative Project
Hyderabad Metro Rail Project
This is L&Ts first foray into public transport. The 71-kilometre-long elevated metro rail project in Hyderabad will have 66 stations and will be completed within five years, L&T's chief financial officer Y. M. Deosthalee told a news channel.
The company aims to achieve financial closure for the project within six months.
The project had earlier been awarded to Maytas Infra Ltd, controlled by the founders of fraud-hit outsourcer Satyam Computer. But the contract was scrapped as the company was unable to achieve financial closure after being linked to the Satyam fraud.
The state government invited fresh bids in July 2009, attracting interest from several bidders including Reliance Infrastructure, Lanco Infratech and GVK Power & Infrastructure.

The 25.6 km long elevated corridor has 25 stations. The right of way along most of the length is sufficient to provide elevated corridor.
The second corridor is planned form Secunderabad to Falaknuma via Charminar. The corridor is planned as elevated corridor for entire length due to planning by the state government for widening the roads along the corridor for most of the areas.
Platform project
HITEC City, Hyderabad’’
HITEC City stands for Hyderabad Information Technology Engineering Consultancy City, a major technology township which is at the center of the information technology industry in Hyderabad, Andhra Pradesh.
HITEC City is spread across 151 acres of land and this area falls under suburbs like Madhapur, Kondapur, Gachibowli, Nanakramguda, Manikonda, Thellapur etc.
The project was initiated by APIIC with participation of private infrastructure companies like L&T, Raheja corporation, Ascendas ITPark,Vanenburg Corporation,SP,RMZ corporation,Divyasree infrastructure, Lancohills technology park,DLF, EmaarMGF and others. The area acts as a major IT hub of Hyderabad. It comprises IT parks such as L&T Infocity, Hitech City2 SEZ, Vanenburg IT Park or The V, Mindspace Cyberabad SEZ, DLF IT SEZ, Satyam Computers IT SEZ, TCS Synergy park IT SEZ, SEZs of Infosys, Wipro and APIIC, built to suit campuses of several major technology companies.