The Yamuna Expressway (or Taj Expressway) is the largest road PPP financing to date in India and the first where government support has been in the form of transfer of real estate development rights. The 36-year concession comprises a toll road project cross-subsidised by cashflows from real estate development on 25 million square metres of land along the route at five different sites.

The model is an alternative means of providing support to the project, which would not be viable backed by toll revenues alone, and is seen as a template for future Indian road PPP development, where toll revenues and government budgets are constrained.

The concession was awarded by the government of Uttar Pradesh to project sponsor Jaiprakash Associates (a Jaypee Group subsidiary), via project company Jaypee Infratech Limited (JIL), in 2003. Under the terms of the concession JIL was originally required to develop and build the road in seven years, with a provision for an extension, and to maintain and collect tolls on the road for a period of 36 years from commercial operation date.

JIL could not begin construction immediately following the concession award because of delays in land acquisition. Consequently, the construction period was extended to April 2013. The government's Yamuna Expressway Industrial Development Authority subsequently started transferring land to the company in 2006 and construction started in January 2008.

The Rs97.4 billion ($2.12 billion) project's Rs60 billion debt package was joint lead-arranged by SBI Capital Markets, Axis Bank and ICICI Bank, which provided the loan with IIFCL, Dena Bank, Punjab National Bank, Oriental Bank of Commerce, State Bank of Hyderabad, State Bank of Travancore and Punjab and Sind Bank. The loan was oversubscribed by 24%, and all banks were scaled back. India Law Services was legal adviser to the lenders.

The debt has a 15-year tenor, with a margin based on the prime lending rates of all of the participating lenders, creating an average rate of 12.5%. There is no grace period to cover slack cash flows during construction, because the income from real estate development rights should make this unnecessary.

The debt service coverage ratio includes movements in net working capital, in the form of advances received from customers less the cost of construction in the process of achieving completion. This has made it possible for the project company to take advantage of cash surpluses in order to maintain a healthy ratio. The Rs37.4 billion equity component includes proposed real-estate revenue of Rs14.9 billion, which is expected to be generated over the construction period.

Calculating the traffic risk on Yamuna was a complex task, as it is a virgin alignment, but was estimated on the basis of the expected amount of traffic that could divert from existing routes, and new traffic attracted to the area because of industrial development. The traffic studies were conducted by Design Aid in association with TPA Engineering Consultancy.

A virgin project of this size faced substantial construction risk. However JIL's parent Jaiprakash Associates Limited (JAL), which has a strong reputation in the industry, holds the construction contract and gave comfort to the lending group. JAL appointed ICT, Scott Wilson, LEA Associates and CES as project management consultants for various stretches of the road, while the real estate development aspect of the project is also being handled by JAL.

The 36-year design-build-finance-operate contract involves building an access-controlled 165km six-lane expressway running along the west bank of the Yamuna river, connecting Agra and Noida. The road will run through the high-density traffic corridor between Delhi and Agra, and therefore has strong potential to attract traffic from adjacent roads and pave the way for the development of satellite towns along the corridor.

JIL, as part of the land-allocation rights granted by the government, plans to set up a special economic zone across Noida, Tappal, Mirzapur, Dankaur and Agra to develop industrial activity in the region, an international airport to cater to the tourist trade and townships along the course of the expressway. To enhance the use of the road, the government of Uttar Pradesh has proposed a Taj International Airport and Aviation Hub and special development zones, for which feasibility studies have already been carried out.

Many in the Indian market see the successful financial close of Yamuna Expressway as the beginning of a new wave of transport infrastructure finance in the country. The integration of real estate development rights in lieu of financial support from the awarding authority, though born of necessity during the crisis, is something that will be looked at by those with a need to fund big Indian road projects in the future.

The next major road deal for the Jaypee Group will be the 1,047km six-lane access-controlled Ganga Expressway project running between Noida and Ballia, which will be India's longest expressway and is set to cost between $8 billion and $9 billion. It too will feature real estate development rights as part of the concession, in this case rights to around 30,000 acres. Jaypee Ganga Infrastructure Corp, the project company set up to deliver the road, is still considering its financing options.

Yamuna Expressway

Status: Financial close 18 January 2010
Description: $1.27 billion financing of a 165km expressway between Noida and Agra in Uttar Pradesh, India
Sponsor: Jaiprakash Associates Limited/Jaypee Group
Financial advisers to JAL: SBI Capital Markets, Axis Bank, ICICI Bank
Participant banks: ICICI Bank, IIFCL, Dena Bank, Punjab National Bank, Oriental Bank of Commerce, State Bank of Hyderabad, State Bank of Travancore, Punjab and Sind Bank
Legal adviser to lenders: India Law Services