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Tuesday, September 28, 2021

Sector-specific valuation used to drive monetisation pipeline

Book-value approach has been used for asset classes where information on comparable market transactions or estimated capex investment is not available.

Written by Sunny Verma | New Delhi |
Updated: August 25, 2021 7:46:47 am
For roads, power transmission and telecom tower assets, the government has used the market approach, where the value is determined based on comparable market transactions for the identified asset classes. (PTI)

The government has used four key methods to arrive at indicative value of Rs 6 lakh crore worth of assets to be monetised under the National Monetisation Pipeline. This is based on the suitability of the valuation approach to the nature of the assets and the accompanying revenue streams. For roads, power transmission and telecom tower assets, the government has used the market approach, where the value is determined based on comparable market transactions for the identified asset classes.

In case of proposed monetisation of 26,700 km of national highways, for example, the indicative value of Rs 1.6 lakh crore arrived at is based on average rate of Rs 6 crore per km. The per km estimated is based on recent TOT (toll operate transfer) transactions and asset mix to be monetised. While average realisation by NHAI under past TOT concessions successfully awarded has been in the range of Rs 9-14 crore per km, a lower range at Rs 6 crore per km has been assumed to factor in certain lower traffic stretches in the portfolio and impact of scale on monetisation.

This approach has also been used to assess indicative value of power transmission assets.The monetisation value of the transmission assets has been considered based on a factor of Rs 1.58 crore per circuit (ckt) km, based on reference value on PowerGrid’s recently closed InvIT. For total assets of 28,608 ckt km, the estimated value comes to Rs 45,200 crore.

Capex approach has been considered for asset classes that may be monetised through PPP (public-private partnership)-based models envisaging capital expenditure by private sector. The principle under the capex approach is that in the absence of the asset monetisation transaction, the Public Asset Owner would have to incur the outlay towards augmentation and O&M (operations & maintenance) of the brownfield asset.

This method has been deployed to value most assets in sectors including ports, airports, railway stations, passenger trains, freight terminals, railway colonies redevelopment, track infra under dedicated freight corridor, sports stadium, warehousing, BharatNet fibre asset, mining, and urban housing redevelopment.

Book-value approach has been used for asset classes where information on comparable market transactions or estimated capex investment is not available. The book value of the assets has been estimated considering the average capex cost incurred to construct a similar category of asset adjusted for the age of the asset and number of years of operation. Power generation assets have been valued at book value.

Enterprise-value approach has been considered for assets where information on existing revenue stream is available or can be reasonably projected based on assumptions and/or available data on prevailing tariff for an asset/asset class. In such cases, net present value of discounted cashflows has been worked out to determine indicative monetisation value. This method has been used to value natural gas and product pipelines as well as for track, signalling, and overhead equipment.

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