IL&FS TRANSPORTATION INVESTMENT TRUST - Transaction Update Note - Final.pdf · PWDGR Government of...

IL&FS TRANSPORTATION INVESTMENT TRUST

TRANSACTION UPDATE NOTE

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TABLE OF CONTENTS

GLOSSARY OF TERMS USED IN THIS TRANSACTION UPDATE NOTE ............................................. 2

OVERVIEW OF THE IL&FS TRANSPORTATION TRUST ........................................................................ 4

FORMATION TRANSACTIONS IN RELATION TO THE IL&FS TRANSPORTATION TRUST ......... 5

RISK FACTORS .................................................................................................................................................. 9

OVERVIEW OF ALL KEY PARTIES INVOLVED IN THE TRANSACTION ......................................... 24

BUSINESS ........................................................................................................................................................... 25

INDUSTRY ......................................................................................................................................................... 65

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS .................................................................................................................................................... 87

LOANS AVAILED OF BY THE PROJECT SPVS ...................................................................................... 108

SUMMARY OF KEY AGREEMENTS ......................................................................................................... 114

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GLOSSARY OF TERMS USED IN THIS TRANSACTION UPDATE NOTE

This Transaction Update Note uses the definitions and abbreviations set forth below which you should consider

when reading the information contained herein.

References to any legislation, including any statute, regulations and rules, are to such legislation, as amended

from time to time.

Term Description

Agreement for Claims pertaining

to Cost and Time Overruns

Agreement dated October 13, 2016 entered into between JRPICL and the

Sponsor

Amendment to Operations and

Maintenance Agreements

Amendment agreements to each respective O&M agreements each dated

[●], to be entered into between ITNL and each Project SPV

Audited Combined Financial

Statements

Audited combined financial statements of the Project SPVs (comprising

NKEL, HREL, JRPICL and SBHL), which comprise the combined balance

Sheets as at June 30, 2016, March 31, 2016, March 31, 2015 and March 31,

2014, and the related combined statements of profit and loss (including

other comprehensive income), combined cash flow statements and

combined statements of changes in equity for the quarters ended June 30,

2016 and June 30, 2015 and for the years ended March 31, 2016, March 31,

2015 and March 31, 2014, and a summary of significant accounting

policies and other explanatory information

Auditors Deloitte Haskins & Sells LLP, statutory auditors of the IL&FS

Transportation Trust

BOO Build Own Operate

BOT Build Own Transfer

BSE BSE Limited

COD Commercial Operation Date

Debentures The long term, unlisted, secured or unsecured, as the case may be,

redeemable non-convertible debentures proposed to be issued by each of

HREL, JRPICL and SBHL to the Trustee (acting in its capacity as the

trustee of the IL&FS Transportation Trust)

Depositories Act Depositories Act, 1996

Depository A depository registered with SEBI under the Securities and Exchange

Board of India (Depositories and Participant) Regulations, 1996

Depository Participant A depository participant as defined under the Depositories Act

Financial Year or Fiscal Year Period of 12 months ended March 31 of that particular year, unless

otherwise stated

GoI Government of India

HREL Hazaribagh Ranchi Expressway Limited

IIML IL&FS Investment Managers Limited

IL&FS Infrastructure Leasing & Financial Services Limited

IL&FS Group Infrastructure Leasing & Financial Services Limited and subsdiaries, joint

ventures and associates both direct & indirect

IL&FS Transportation Trust IL&FS Transportation Investment Trust

IL&FS Transportation Trust Assets Assets proposed to be owned by the IL&FS Transportation Trust, whether

directly or through a SPV(s), and includes all rights, interests and benefits

arising from and incidental to ownership of such assets, in accordance with

the InvIT Regulations and applicable law

Investment Management

Agreement

Investment management agreement dated November 4, 2016, entered into

between the Trustee (as hereinafter defined) and the Investment Manager

Investment Manager or IAAL IIML Asset Advisors Limited

InvIT Regulations Securities and Exchange Board of India (Infrastructure Investment Trusts)

Regulations, 2014

ITNL IL&FS Transportation Networks Limited

JRPICL Jharkhand Road Projects Implementation Company Limited

Lane Kilometer One kilometer long segment of road that is a single lane in width

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Term Description

Listing Regulations Securities and Exchange Board of India (Listing Obligations and

Disclosure Requirements) Regulations, 2015

Name License Agreement Name license agreement dated October 14, 2016, entered into between

IL&FS and the Trustee (as hereinafter defined)

NKEL North Karnataka Expressway Limited

NSE The National Stock Exchange of India Limited

O&M Operation and maintenance

PAN Permanent account number

Parties to the IL&FS


Together, the Sponsor, Trustee, Investment Manager and Project Manager

Project Implementation and

Management Agreements

Project implementation and management agreements each dated [●], to be

entered into amongst the Trustee, Project Manager, the Investment

Manager and each Project SPV, together with the fee letter.

Project Manager IL&FS Transportation Networks Limited

Project SPV(s) Special purpose vehicles, as defined in Regulation 2(1)(zy) of the InvIT

Regulations, in this case being, HREL, JRPICL, NKEL and SBHL

Projects Infrastructure projects of each Project SPV

Prospective Combined Financial

Information

Projections of revenue and operating cash flows of the Project SPVs

(comprising NKEL, HREL, SBHL and JRPICL) for the years ended March

31, 2017, 2018 and 2019), prepared in accordance with Standard on

Assurance Engagement 3400, ‘The Examination of Prospective Financial

Information’, issued by the Institute of Chartered Accountants of India

PWDGR Government of Rajasthan, Public Works Department (on behalf of Road

Transport & Highways, Government of India)

RBI Reserve Bank of India

ROFO Deed Deed of right of first offer dated [●] to be entered into between IL&FS

Transportation Trust (acting through the Trustee and the Investment

Manager) and the Sponsor

Rs./Rupees/INR/₹ Indian Rupees

SBHL Sikar Bikaner Highway Limited

SEBI Securities and Exchange Board of India

Securities Act U.S. Securities Act of 1933

Services Agreements Services agreements each dated [●], to be entered into amongst ITNL, the

Investment Manager and each Project SPV

Share Purchase Agreements Share purchase agreements each dated [●], to be entered into amongst

ITNL, Trustee, the Investment Manager and each Project SPV

Sponsor IL&FS Transportation Networks Limited

SPV Special purpose vehicle, as defined under the InvIT Regulations

Stock Exchanges Together, the BSE and the NSE

Trust Deed Trust Deed dated October 13, 2016, entered into between the Sponsor and

the Trustee

Trustee / Vistra Vistra ITCL (India) Limited (formerly known as IL&FS Trust Company

Limited)

Unitholder Any person who owns any Unit of the IL&FS Transportation Trust

Units An undivided beneficial interest in the IL&FS Transportation Trust, and

such Units together represent the entire beneficial interest in the IL&FS


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OVERVIEW OF THE IL&FS TRANSPORTATION TRUST

Structure and description of the IL&FS Transportation Trust

The Sponsor settled the IL&FS Transportation Trust pursuant to a trust deed dated October 13, 2016, under the

provisions of the Indian Trusts Act, 1882 (“Trust Deed”), registered pursuant to the Registration Act, 1908. The

Sponsor has transferred to the Trustee a sum of Rs. 10,000 towards the initial settlement of the IL&FS

Transportation Trust. The IL&FS Transportation Trust was registered with SEBI on December 7, 2016 under

Regulation 6(2) of the InvIT Regulations and has obtained a certificate of registration from SEBI bearing

registration number IN/InvIT/16-17/0006.

Investment objectives

In accordance with the Trust Deed, the investment objectives of the IL&FS Transportation Trust include the

undertaking of activity as an infrastructure investment trust as permissible in terms of the InvIT Regulations.

The investments of the IL&FS Transportation Trust shall only be in accordance with the InvIT Regulations,

including in such SPVs or infrastructure projects or securities in India, as permitted under the InvIT Regulations

and in accordance with the investment strategy, including as detailed in “Business – Business Strategy” on page

29. Any investments by the IL&FS Transportation Trust shall be in compliance with the InvIT Regulations.

In accordance with the extant InvIT Regulations, the IL&FS Transportation Trust is not permitted to:

(i) invest in units of any other investment infrastructure trust;

(ii) undertake lending to any person, provided that investment in debt securities shall not be considered as

lending;

(iii) hold an infrastructure asset for a period of less than three years from the date of purchase of such asset,

directly or through any special purpose vehicle; provided that this shall not apply to investments in

securities of companies in the infrastructure sector other than special purpose vehicles, as defined in the

InvIT Regulations; and

(iv) launch any schemes.

Subject to the restrictions and requirements of applicable law, the IL&FS Transportation Trust may not carry on

any other principal activity.

Fee and expenses

Annual Expenses

The expenses to be charged to the IL&FS Transportation Trust will broadly include fees payable to (i) the

Trustee; (ii) the Investment Manager; (iii) the Project Manager; (iv) the auditor; (v) the valuer and (vi) any other

intermediaries. Further, expenses in relation to the proposed fund raising exercise shall be borne by the IL&FS

Transportation Trust.

Proposed fund raising exercise related expenses

Any expenses in relation to the fund raising exercise, to the extent already incurred by the Sponsor, shall be

reimbursed to the Sponsor from the proceeds of the fund raising exercise. The break-up of the fund raising

exercise related expenses will be updated prior to the launch of proposed fund raising exercise.

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FORMATION TRANSACTIONS IN RELATION TO THE IL&FS TRANSPORTATION TRUST

Details of the proposed initial portfolio of the IL&FS Transportation Trust

The IL&FS Transportation Trust’s initial portfolio is proposed to comprise the four Project SPVs. The details of

each Project SPV are provided below.

1. Hazaribagh Ranchi Expressway Limited

HREL was incorporated on March 19, 2009 under the Companies Act, 1956 (corporate identity number

U45203MH2009PLC191070) as a special purpose vehicle. Its registered office is located at The IL&FS

Financial Center, Plot C-22, G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.

Authorized share capital of HREL as of June 30, 2016

132,000,000 equity shares of Rs. 10 each Rs. 1,320,000,000.00

Issued and paid-up share capital of HREL as of June 30, 2016


As of June 30, 2016, ITNL held approximately 99.99% of the issued subscribed and paid-up capital of HREL,

and Punj Lloyd Limited held 0.01% in HREL.

2. Jharkhand Road Projects Implementation Company Limited

JRPICL was incorporated on August 4, 2009 under the Companies Act, 1956 (corporate identity number

U45200JH2009PLC013693) as a special purpose vehicle. Its registered office is located at 443 A, Road No. 5,

Ashok Nagar, Ranchi 834 002.

Authorized share capital of JRPICL as of June 30, 2016

270,000,000.00 equity shares of Rs. 10 each Rs. 2,700,000,000.00

Issued and paid-up share capital of JRPICL as of June 30, 2016

259,498,000.00 equity shares of Rs. 10 each Rs. 2,594,980,000.00

As on June 30, 2016, ITNL held approximately 93.43% of the issued subscribed and paid-up capital of JRPICL,

and Infrastructure Leasing & Financing Services Limited held 6.57% in JRPICL.

3. North Karnataka Expressway Limited

NKEL was incorporated on October 15, 2001 under the Companies Act, 1956 (corporate identity number

U45203MH2001PLC163992) as a special purpose vehicle. Its registered office is located at The IL&FS

Financial Center, Plot C-22, G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.

Authorized share capital of NKEL as of June 30, 2016


Issued and paid-up share capital of NKEL as of June 30, 2016

59,391,100 equity shares of Rs. 10 each Rs. 593,911,000.00

As of June 30, 2016, ITNL (directly and indirectly) held approximately 87% of the issued subscribed and paid-

up capital of NKEL, IL&FS and Punj Lloyd Limited held 6.50% each, in NKEL.

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4. Sikar Bikaner Highway Limited

SBHL was incorporated on April 13, 2012 under the Companies Act, 1956 (corporate identity number

U45203MH2012PLC229612) as an SPV. Its registered office is located at the IL&FS Financial Centre, Plot No.

C-22, G Block, Bandra Kurla Complex, Bandra (East) Mumbai 400 051.

Authorized share capital of SBHL as of June 30, 2016:


Issued and paid-up share capital, as of June 30, 2016


As of June 30, 2016, ITNL held 100.0% of the issued, subscribed and paid-up capital of SBHL.

For details of the business of each Project SPV, see “Business” on page 25.

Acquisition of Project SPVs

Prior to undertaking the fund raising exercise, the Sponsor proposes to acquire (i) 0.01% of the issued,

subscribed and paid up capital of HREL, held by Punj Lloyd Limited; (ii) 6.57% of the issued, subscribed and

paid up capital of JRPICL held by IL&FS; and (iii) 74.00% of the issued, subscribed and paid up capital of

NKEL held by ITNL Road Investment Trust and 6.50% each, of the issued, subscribed and paid up capital of

NKEL held by IL&FS Limited and Punj Lloyd Limited, respectively. The Sponsor is in the process of making

necessary applications to the relevant concessioning authorities and the lenders, for obtaining their consents for

such acquisitions.

As of October 1, 2016, HREL, JRPICL, and SBHL have ₹ 4,203.27 million, ₹ 1,864.60 million, and ₹ 1,701.40

million, respectively, outstanding towards loans availed from the Sponsor. For details, see “Loans Availed of by

the Project SPVs” on page 108. The Sponsor may, prior to undertaking the proposed fund raising exercise,

convert any or all of the outstanding loans in any or all of HREL, JRPICL and SBHL, into equity shares of such

Project SPV, subject to receipt of necessary consents and approvals.

The entire issued and paid-up share capital of each of the Project SPVs is proposed to be acquired and held by

the Sponsor, prior to undertaking the proposed fund raising exercise. In accordance with the InvIT Regulations,

prior to the completion of the proposed fund raising exercise, the Sponsor proposes to sell and the IL&FS

Transportation Trust proposes to acquire, 100% of the issued and paid-up capital of each of the Project SPVs,

pursuant to share purchase agreements, to be entered into, with the Trustee, the Investment Manager and each of

the Project SPVs (“Share Purchase”). For details of the share purchase agreements, see “Summary of Key

Agreements” on page 114.

Acquisition of Units by the Sponsor

The Sponsor will receive consideration in cash for the Share Purchase. The Sponsor will subscribe to such

number of Units, being not less than 26.00% of the Units issued and outstanding after the proposed fund raising

exercise. The consideration in the form of cash, received for acquisition of Units by the Sponsor, is proposed to

be utilized towards subscription of the Debentures by the IL&FS Transportation Trust pursuant to the Debenture

Subscription Agreements. For details of the Debenture Subscription Agreements, see “Summary of Key

Agreements” on page 114. The proceeds from the issuance of the Debentures are proposed to be utilized for the

repayment of certain outstanding debt of HREL, JRPICL and SBHL. For details of outstanding debt of the

Project SPVs, see “Loans Availed of by the Project SPVs” on page 108.

Utilization of Proceeds from the Proposed Fund Raising Exercise

The proceeds from the proposed fund raising exercise are proposed to be utilised towards (i) acquisition of the

Project SPVs from the Sponsor, if the consideration is provided in cash to the Sponsor for the Share Purchase;

and (ii) subscription of Debentures by the IL&FS Transportation Trust.

On account of the mechanics for the settlement of the acquisition of the Project SPVs, certain funds would be

required a few days prior to the allotment of units through the proposed fund raising exercise to enable the

Sponsor to be able to receive the consideration for the sale of the equity shares of the Project SPVs and to effect

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the completion of the acquisition of the Project SPVs by the IL&FS Transportation Trust prior to the allotment.

Accordingly, a bridge loan may be availed to finance acquisition of the Project SPVs. The portions of the net

proceeds allocated towards acquisition of the Project SPVs will be utilized to repay such bridge loan.

Subscription of Debentures

Each of JRPICL, HREL and SBHL will issue the Debentures to the Trustee (acting in its capacity as the trustee

of the IL&FS Transportation Trust). JRPICL, HREL and SBHL propose to utilize the funds raised through such

Debentures, towards repayment/pre-payment of their subsisting debt.

The pre-payment or scheduled repayment will help reduce outstanding indebtedness of the IL&FS

Transportation Trust on a consolidated basis, and assist the IL&FS Transportation Trust in maintaining a

favourable debt-equity ratio, which will enable the IL&FS Transportation Trust to raise further resources in the

future to fund potential business development opportunities and plans to grow and expand its business. For

details of the loans of the Project SPVs that are currently outstanding and that may be repaid or pre-paid, either

fully or in part, see “Loans Availed of by the Project SPVs” on page 108.

The identification of debt to be prepaid by the Project SPVs shall be based on various factors including (i) any

conditions attached to the loans restricting IL&FS Transportation Trust’s ability to prepay the loans and time

taken to fulfil such requirements; (ii) levy of any pre-payment penalties and the quantum thereof; (iii) provisions

of any law, rules, regulations and contracts governing such borrowings; and (iv) other commercial

considerations, including, the interest rate on the loan facility, the amount of the loan outstanding and the

remaining tenor of the loan.

The Project SPVs may repay or refinance some of their existing borrowings prior to the completion of the

proposed fund raising exercise. Accordingly, the IL&FS Transportation Trust may utilise the net proceeds for

repayment or pre-payment of part or all such refinanced loans or any additional loan facilities obtained by the

Project SPVs.

In case the IL&FS Transportation Trust is unable to raise proceeds through the proposed fund raising exercise

until the due date for repayment of any of the loans of the Project SPVs, the funds earmarked for such

repayment may be utilised for repayment or prepayment of the existing loans or other loans.

Proposed structure of the IL&FS Transportation Trust after completion of the proposed fund raising

exercise

The following structure illustrates the relationship among the IL&FS Transportation Trust, the Trustee, the

Investment Manager, the Project Manager and the Unitholders after completion of the proposed fund raising

exercise:

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Notes:

(1). Income of the IL&FS Transportation Trust includes interest payment on non-convertible debentures,

principal repayment of non-convertible debentures and dividends.

(2). Vistra ITCL (India) Limited (formerly known an IL&FS Trust Company Limited), an independent debenture

trustee registered with SEBI.

(3). NKEL will have external bondholders after completion of the proposed fund raising exercise. Further, it is

proposed that JRPICL will have external bondholders after completion of the proposed fund raising

exercise. For details, see “Loans Availed of by the Project SPVs” on page 108.

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RISK FACTORS

The risks and uncertainties described below are not the only risks that the IL&FS Transportation Trust faces or

may face. Additional risks and uncertainties not presently known or that are currently believed to be immaterial

may also have an adverse effect on the business, results of operations and financial condition of the IL&FS

Transportation Trust. The financial and other related implications of risks concerned, wherever quantifiable,

have been disclosed in the risk factors mentioned below. However, there are risks where the effect is not

quantifiable and hence has not been disclosed in the applicable risk factors.

To obtain a complete understanding, this section should be read in conjunction with the section titled

“Business” as well as the financial statements and other financial information included elsewhere in this

Transaction Update Note.

This Transaction Update Note also contains forward-looking statements that involve risks and uncertainties.

The IL&FS Transportation Trust’s actual results could differ materially from those anticipated in these

forward-looking statements as a result of certain factors, including considerations described below.

1. The existing debt financing arrangements at certain of the Project SPVs will undergo a refinancing

exercise for which definitive documentation has not been executed as of the date of the Transaction

Update Note; there can be no assurance that such refinancing exercise will take place or that the terms

of such refinancing will be on terms beneficial to the Project SPVs.

As of October 1, 2016, the total combined indebtedness of the Project SPVs aggregated Rs. 40,181.39

million. These borrowings were incurred from third parties and from the Sponsor, ITNL. As of October 1,

2016, the Project SPVs’ indebtedness to ITNL aggregated Rs. 7,957.62 million, of which Rs. 4,203.27

million was outstanding with HREL, Rs. 1,701.40 million was outstanding with JRPICL and Rs. 1,864.60

million was outstanding with SBHL. NKEL did not have any indebtedness outstanding to ITNL as of

October 1, 2016. The Sponsor may, subject to receipt of necessary approvals, consider converting the

Project SPVs’ outstanding indebtedness to ITNL, either fully or in part, into equity shares of each of the

Project SPVs. The conversion of these amounts into equity shares of the Project SPVs will require the

consent of the Project SPVs’ lenders and the concessioning authorities, as applicable. There can be no

assurance that these consents and approvals will be forthcoming in a timely manner or that these consents

and approvals will be without conditions.

Additionally, as of October 1, 2016, JRPICL had Rs. 20,997.28 million of outstanding indebtedness that it

had incurred from third party lenders, including certain associates of the Sponsor. JRPICL intends to

refinance such indebtedness, either fully or in part, through the issuance of non-convertible debentures to

eligible investors (the “JRPICL Phase I Refinanced Debt”). The JRPICL Phase I Refinanced Debt is

proposed to be undertaken prior to any fund raising exercise by the IL&FS Transportation Trust. The terms

relating to the refinancing of such outstanding indebtedness have neither been finalized nor has JRPICL

sought approvals and consents from the existing lenders of the outstanding indebtedness. In addition,

approvals from the concessioning authorities have also not been sought. There can be no assurance that the

refinancing of such outstanding indebtedness will occur on terms that are favorable to JRPICL, or that such

refinancing will occur in a timely manner.

Further, a portion of the proceeds from any fund raising exercise by the IL&FS Transportation Trust are

proposed to be utilized towards the partial repayment of the JRPICL Phase I Refinanced Debt. After the

completion of such fund raising exercise, the remaining outstanding portion of the JRPICL Phase I

Refinanced Debt is also proposed to be refinanced (the “JRPICL Phase II Refinanced Debt”). Such

refinancing may be undertaken through the issuance of debt securities, including a fresh issue on non-

convertible debentures for which certain approvals may be required. Under the terms contemplated for the

JRPICL Phase II Refinanced Debt, the security to be provided may include (i) a first charge on all movable,

immovable, tangible and intangible assets of JRPICL, all receivables from the JRPICL Projects, and all

rights, benefits and interests under the project agreements, insurance policies and approvals; (ii) a first

charge on JRPICL’s escrow accounts and escrow sub-accounts and major maintenance reserve (into which

all the JRPICL Projects’ revenues and insurance proceeds are deposited); (iii) receipt of an unconditional

and irrevocable guarantee from the IL&FS Transportation Trust for meeting any shortfalls in debt servicing

and termination payments; and (iv) a charge on the distribution accounts of each of HREL, SBHL and

NKEL under the respective escrow accounts.

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Any inability of the IL&FS Transportation Trust to complete the refinancing transactions will restrict the

ability of the IL&FS Transportation Trust to make distributions to eventual unitholders. In the event the

IL&FS Transportation Trust is unable to complete such debt financing transactions, one will not be able to

rely on the projections or evaluate the manner in which the IL&FS Transportation Trust proposes to invest

the net proceeds of such fund raising exercise.

2. Indemnities given by the Sponsor or IL&FS, as the case may be, in certain definitive documentation,

some of which are yet to be executed, may be inadequate or may not be recoverable.

The Services Agreements, the Project Implementation and Management Agreements, the Name License

Agreement and the O&M Amendment Agreements contain or propose to contain indemnities to be

provided by ITNL or IL&FS, as the case may be, acting in the capacity as the service provider, project

manager, licensor and operator, respectively, in favor of the IL&FS Transportation Trust, the Project SPVs,

the Investment Manager and the Trustee, as the case may be. While the indemnities or proposed

indemnities, as the case may be, in these agreements, are intended to provide economic protection to the

IL&FS Transportation Trust, such indemnities are subject to limitations such as time limits and claim

amount limits. Accordingly, under certain circumstances, the indemnities may not cover the entire amount

of loss that may be incurred by the IL&FS Transportation Trust. Further, there can be no assurance that the

relevant Project SPV or the IL&FS Transportation Trust will be able to successfully bring a claim against

the Sponsor under the relevant agreement.

Under the proposed terms of the Services Agreements, ITNL will indemnify the relevant Project SPVs and

their employees, officers and agents, as the case may be, against any direct actions, claims, losses, costs,

damages, liabilities and expenses, including reasonable legal fees, which arise from the negligence, default

or misconduct of, or breach of the Services Agreements by, ITNL or its employees, directors, officers or

agents. Under the proposed terms of the Project Implementation and Management Agreements, ITNL will

indemnify the Trustee, the Investment Manager and their respective directors, employees, officers and the

IL&FS Transportation Trust against any direct claims, losses, costs, damages, liabilities and expenses,

including legal fees incurred or suffered, in respect of any breach of the Project Implementation and

Management Agreements or violation of the InvIT Regulations or other applicable laws by the Project

Manager. The indemnity to be given by ITNL under each of the Services Agreements and the Project

Implementation and Management Agreements will be limited to up to 50.0% of the fees paid or payable by

the IL&FS Transportation Trust in a particular financial year.

In respect of the Name License Agreement, IL&FS has agreed to indemnify the Trustee for actual losses

arising from any breach of representations and warranties made by IL&FS. The losses to be covered by the

indemnity given by IL&FS do not include remote, unforeseeable, indirect, punitive or consequential losses.

Under the proposed terms of the O&M Amendment Agreements, ITNL will indemnify the relevant Project

SPV and its authorised personnel (as defined under each O&M Amendment Agreement) against any and all

direct losses, liabilities, claims, costs and expenses, including legal fees, incurred or suffered by the relevant

Project SPV and/or its authorized personnel arising out of, or result from, any breach of obligations or

deficiency of services by ITNL, for claims not exceeding the fees paid or payable by the IL&FS

Transportation Trust to ITNL in a particular financial year.

Accordingly, there can be no assurance that the IL&FS Transportation Trust will be able to rely on the

indemnities proposed to cover the entire amount of any loss, damages, liabilities or cost overruns incurred

by it and recover such amounts under such indemnities.

3. The acquisition by the IL&FS Transportation Trust of the Project SPVs from the Sponsor may be

subject to certain risks, which may result in damages and losses.

While the Investment Manager believes that reasonable due diligence has been carried out on the Project

SPVs prior to their acquisition by the IL&FS Transportation Trust, there can be no assurance that the

Projects will not have defects or deficiencies that are unknown or unquantified and that may require

additional capital expenditure or obligations to third parties, including to certain relevant authorities, which

may have an adverse effect on the IL&FS Transportation Trust’s earnings and cash flows. Additionally, the

Projects may be subject to unknown or contingent liabilities for which the IL&FS Transportation Trust may

have limited or no recourse against the Sponsor. Such unknown or contingent liabilities may include tax

liabilities and other liabilities whether incurred in the ordinary course of business or otherwise.

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While the Investment Manager has general and specific indemnities with respect to breaches of

representations and warranties and certain items that have been specifically identified in the proposed Share

Purchase Agreements, such indemnification is limited and subject to various materiality thresholds, caps

and time periods within which claims may be made whether under the indemnities or through other means

(such as breach of contract claims). There can be no assurance that the IL&FS Transportation Trust will

recover any amounts with respect to such losses if any such claims are made. Further, the representations,

warranties and indemnities given by the Sponsor (and as limited in the Share Purchase Agreements) may

not be sufficient to afford satisfactory protection from costs or expenses arising as a result of such defects or

liabilities. Any such insufficiency could have an adverse effect on the financial condition of the IL&FS


For further details, see “Summary of Key Agreements” on page 114.

4. The IL&FS Transportation Trust is a newly settled trust with no established operating history and no

historical financial information and, as a result, investors may not be able to assess its prospects on the

basis of past records.

The IL&FS Transportation Trust was settled on October 13, 2016 under the provisions of the Indian Trust

Act, 1882 and was registered as an infrastructure investment trust in accordance with the InvIT Regulations

on December 7, 2016. The IL&FS Transportation Trust will not acquire the Project SPVs until immediately

prior to completion of any fund raising exercise by the IL&FS Transportation Trust. Accordingly, the

IL&FS Transportation Trust does not have any operating history or historical financial information by

which its past performance may be judged. This will make it more difficult for investors to assess the likely

future performance of the IL&FS Transportation Trust. There can be no assurance that the Project SPVs

will be able to generate sufficient cash flows from the operations of the Projects for the IL&FS

Transportation Trust to make distributions to eventual unitholders or that such distributions will be in line

with those set out in the “Prospective Combined Financial Information”.

5. The flexibility of the IL&FS Transportation Trust and the Project SPVs to utilize available funds may be

restricted by escrow arrangements.

Under the terms of the concession agreements, the Project SPVs are required to establish escrow accounts.

The Project SPVs are required to deposit their cash inflows and receipts into the escrow accounts,

including, among others, all receivables, annuities or tolls collected from the Projects, termination

payments, insurance claims and any payment which is payable by the concessioning authority. The funds in

such escrow accounts are to be utilized only in the manner prescribed in the escrow agreements and the

concession agreements, unless prior consent from the concessioning authority is obtained.

Any withdrawals from the escrow accounts by the Project SPVs during the concession periods or, upon

termination of the relevant concession agreements, must be made in accordance with the terms of the

concession agreements and escrow agreements, thereby limiting the flexibility of the Project SPVs in

utilizing available funds to plan for, or react to, changes in their business needs, which could have an

adverse effect on their business, financial condition and results of operations.

6. The Project SPVs have entered into concession agreements with government entities which contain

certain onerous provisions and any failure to comply with such concession agreements could result in

adverse consequences including penalties, deductions from annuities and substitution of the

concessionaire.

The Project SPVs have entered into concession agreements with the Government of Jharkhand, the NHAI

and the PWDGR, with which the Project SPVs have a limited ability to negotiate the terms of the

concession agreements. As a result, the concession agreements contain terms that may be onerous to the

Project SPVs.

The concession agreements impose certain onerous obligations on the Project SPVs in relation to, among

other things, minimum shareholding requirements, construction of competing roads by the government

and/or the concessioning authorities, compliance with operation and maintenance requirements and

substitution of the concessionaires by the concessioning authorities, in the event of any default under the

project agreements, which may limit the Project SPVs’ flexibility in carrying out their businesses. Failure to

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comply with these requirements or to obtain a waiver thereto could result in adverse consequences,

including the Project SPVs being liable for compensating the relevant concessioning authorities for such

breach or termination, as may be specified in the concession agreements.

Further, the Projects should typically achieve the commercial operation stage no later than the commercial

operation dates specified under the relevant concession agreements, or by the end of the extension period, if

any, granted by the concessioning authorities. The failure to adhere to contractually agreed or extended

timelines, for reasons other than force majeure events not within the control of the concessionaire, may

require the Project SPVs to pay liquidated damages as stipulated in the concession agreements, among other

things. The concessioning authority may also be entitled to terminate the concession agreement if a delay in

the completion of a relevant Project is not as a result of any of the agreed exceptions. In such cases, a

Project SPV may receive partial payments under its concession agreement and the payments received by it

may be less than the estimated cash flows expected from such Projects.

The form of the concession agreement has only evolved in the last decade and there is limited guidance

available on the interpretation of the terms and conditions contained in such concession agreements. In

addition, certain terms of the concession agreements are ambiguous and untested and accordingly, their

interpretation by the relevant concessioning authorities may differ from that of the Project SPVs. In the

event that the interpretation of the concession agreements is unfavorable to the Project SPVs, their business,

financial condition and results of operations may be adversely affected.

7. The Project SPVs have a limited period to operate the Projects, as the concession periods granted to the

Project SPVs are fixed.

Each of the concession agreements entered into by the Project SPVs provides for a fixed term concession

(with the exception of the SBHL Project which may have its concession period revised in accordance with

the terms of the concession agreement) with no renewal option, at the end of which the Projects will be

transferred to the relevant government or concessioning authority. The concessions granted to HREL and

SBHL in relation to the HREL Project and the SBHL Project will expire on July 31, 2028 and February 17,

2038, respectively. In relation to the JRPICL Projects, the concession periods for the RPR I Project, the

RPR II Project, the RRR Project, the CKC Project and the AK Project will end on October 12, 2027, April

30, 2029, September 21, 2027, November 30, 2029 and January 31, 2028, respectively. The concession

period for the NKEL Project will expire on December 19, 2019. There can be no assurance that the IL&FS

Transportation Trust will be able to successfully acquire new assets to replenish its portfolio once the

existing concession agreements expire. Further, if the operating periods of the Projects are shortened or

disrupted or the Project SPVs’ rights to operate the Projects are terminated before the expiration of the

concessions, the business, financial condition and results of operations of the IL&FS Transportation Trust

may be adversely affected.

8. The concession agreements may be terminated prematurely under certain circumstances.

The concession agreements may be terminated by the concessioning authorities for a variety of reasons,

including but not limited to one or more of the following:

failure to comply with prescribed minimum shareholding requirements;

in certain cases, failure to complete pending items listed in the provisional completion certificate within

the prescribed time;

failure to participate in or match the bid of a successful bidder in the event of any proposed

augmentation of capacity of the existing roads;

failure to augment the capacity of the project if the average daily traffic exceeds the traffic capacity for

which the project was designed in an accounting year;

failure to comply with prescribed operational or maintenance standards;

temporary or permanent halt of operations at the relevant project;

occurrence of an event of default under the financing documents or the lenders having recalled all or a

portion of a loan;

creation of an encumbrance or lien in violation of the concession agreement;

continuation of a force majeure event, act of war, expropriation or compulsory acquisition of any

project assets by the central or state government, industrial strikes and public agitation, beyond a

specified time; and

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failure by the relevant Project SPV to comply with any other material term of the relevant concession

agreement.

If a concession agreement is terminated by the concessioning authority due to a default by a Project SPV,

the Project SPV may be exposed to additional liability. While a Project SPV is entitled to receive the

termination payments from the concessioning authority, there can be no assurance that the concessioning

authority will make such termination payments in time, or at all. In addition, there is no assurance that the

termination payments from the concessioning authority, if any, will be adequate to pay all the outstanding

third party debt of the Project SPVs or enable the IL&FS Transportation Trust to recover its investments,

including debt infused by the IL&FS Transportation Trust in the Project SPVs. If a concession agreement is

terminated prematurely, the business, financial condition and results of operations of the relevant Project

SPV could be adversely affected.

9. Annuity payments and toll rates are fixed by the concessioning authorities or the government authorities,

as the case may be, and may not protect the Project SPVs against increases in operating and

maintenance costs.

The IL&FS Transportation Trust will own four Project SPVs operating eight projects under its portfolio,

seven of which are annuity based projects and one that is a toll based project. For the annuity based

projects, annuity revenue depends on the fixed amounts payable by the relevant government or

concessioning authority. Since the concession agreements are standard form, HREL, JRPICL and NKEL

are not permitted to renegotiate the financial terms of their annuity arrangements during the terms of their

concession agreements. The amount of annuity is not linked to actual costs of operating and maintaining the

project. There are no provisions in the concession agreements that protect the Project SPVs against

increases in operating costs or capital expenditure requirements, except in certain specified circumstances,

such as a change in law or the occurrence of a force majeure event. Similarly, for toll based projects, toll

revenue depends on the tolling rates set in accordance with the relevant notifications issued, from time to

time, by the relevant state governments or the central government, as applicable. Such tolling rates are

calculated on the basis of a pre-determined base rate, the distance to be travelled, infrastructure used and is

subject to increases to reflect increases in the wholesale price index.

Under the terms of the concession agreements entered into by the Project SPVs, the Project SPVs have

obligations to operate and maintain the Projects. Under the O&M agreements, the Project SPVs are required

to pay the O&M operators a fixed fee (with a pre-defined escalation rate) relating to all maintenance,

whether routine or material, for the Projects. The concession agreements typically specify certain O&M

standards and specifications to be met by the Project SPVs. These specifications and standards require the

Project SPVs to incur O&M costs on a regular basis which may not result in a corresponding increase in

annuity or tolls collected.

The concessioning authorities have the right to periodically carry out tests through one or more engineering

firms to assess the quality of roads and their maintenance. If the Project SPVs fail to maintain the roads in

accordance with the standards set forth or provide lane availability in the manner stated in the relevant

concession agreements, the concessioning authorities may impose penalties, withhold annuity payments and

demand remedies within the specified cure periods. If a Project SPV fails to cure such defaults within such

time as prescribed under the relevant concession agreement, the concession agreement may be terminated at

the option of the concessioning authority. Further, in the event that the concession agreement is suspended

or terminated due to a default or breach by the Project SPV, the concessioning authority is entitled to step

into such agreement and replace the Project SPV.

The concession agreements also require the Project SPVs to indemnify the concessioning authorities

including for losses arising out of the design, engineering, construction, procurement, operation and

maintenance of the Projects or out of a breach of obligations under the concession agreements, among

others. ITNL, as the O&M operator, has agreed to indemnify the Project SPVs and the relevant

concessioning authorities against all direct claims, liabilities, costs, damages and expenses arising as a

result of its breach under the relevant O&M agreement including an undertaking to pay the Project SPV for

any shortfall in annuities paid by the concessioning authority or loss of revenues from tolls. However, under

the proposed terms of the O&M Amendment Agreements, even though ITNL will continue to indemnify

the Project SPVs and the relevant concessioning authorities, ITNL intends to limit its liability under the

agreements to the extent of fees paid to it for the particular financial year as the O&M operator unless

otherwise specified. In the event that the shortfall in annuities and tolls exceeds the indemnity thresholds

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proposed, the Project SPVs’ results of operations will be reduced to the extent of the difference between the

indemnities and the reduction in annuities and tolls. Further, the Project Manager will agree to indemnify

the IL&FS Transportation Trust (or other relevant parties) for any breach of the Project Implementation and

Management Agreements (for claims up to 50.0% of the fees paid or payable by the IL&FS Transportation

Trust to ITNL in a particular financial year). However, there can be no assurance that a Project SPV or the

IL&FS Transportation Trust may be successful in enforcing its claim against the O&M operator in the event

of such breach. Any unsuccessful claim against the O&M operator will have an adverse effect on the

business, financial condition and results of operations of the Project SPVs and, consequently, the IL&FS


10. The Project SPVs, which are responsible for the operation and maintenance of the projects, may be

directed by the relevant concessioning authority to undertake, and the Project SPVs will be obliged to

perform, additional construction work.

Under the terms of the concession agreements, the Project SPVs are responsible for the operation and

maintenance of the Projects during the applicable concession periods. The concessioning authority may

require a Project SPV to provide additional works and services not included in the original scope of the

concession agreement. For example, in a letter dated May 12, 2016 from the Government of Jharkhand to

JARDCL, JRPICL was required to perform additional construction work in respect of the RPR II Project.

Additionally, under the HREL Supplementary Agreement, HREL is responsible for completing the

remainder of the outstanding work required to be completed under the HREL Concession Agreement,

including the construction of Ramgarh bypass with an aggregate length of 15.72 Lane Kilometers, in lieu of

the existing road passing through Ramgarh city, as provided under the HREL Concession Agreement.

Under a change of scope order, the Project SPVs and consequently, the IL&FS Transportation Trust, may

bear risks associated with any increase in costs for additional construction work, including being required to

obtain the necessary permits, licences or approvals, from relevant regulatory bodies. Any inability by the

Project SPVs to comply with any such orders by the concessioning authorities could have an adverse effect

on the profitability of the IL&FS Transportation Trust.

11. The Project SPVs, parties to the IL&FS Transportation Trust and their respective associates are involved

in legal proceedings, which if determined against such parties, may have an adverse effect on the

reputation, business and results of operations of the IL&FS Transportation Trust.

The Project SPVs, the Sponsor, the Project Manager, the Investment Manager, Trustee, and their respective

associates are involved in certain legal proceedings, including in relation to criminal matters, tax matters,

civil and arbitration proceedings, which are pending at different levels of adjudication before various courts,

tribunals, and appellate authorities. There is no assurance that these legal proceedings and regulatory

matters will be decided in favor of the respective entities. Decisions in any of the aforesaid proceedings

adverse to the Project SPVs’ interests may have an adverse effect on the Project SPVs’ business, future

financial performance and results of operations.

Further, upon completion of acquisition of the Project SPVs, the IL&FS Transportation Trust will be

responsible for legal proceedings on behalf of the Project SPVs. While the Sponsor intends to provide

certain indemnities under the relevant Share Purchase Agreements, there can be no assurance that the

relevant Project SPV or the IL&FS Transportation Trust will be able to successfully bring a claim against

the Sponsor under the relevant Share Purchase Agreements or that such indemnities will be adequate to

satisfy all the losses, damages, costs and expenses that may be suffered by the IL&FS Transportation Trust

arising from such proceedings or the consequences thereof.

12. There are certain liabilities imposed on the IL&FS Transportation Trust as a result of an assignment of

certain receivables of the Project SPVs to the Sponsor.

Under the terms of the Agreement for Claims Pertaining to Cost and Time Overruns, JRPICL has agreed to

assign certain of its approved receivables from the Government of Jharkhand in favor of the Sponsor. Such

assignment is subject to the terms of the RPR II Concession Agreement and the relevant escrow agreement

in respect of the RPR II Project. Currently, a claim of Rs. 1,064.77 million made by JRPICL against the

Government of Jharkhand has been assigned to the Sponsor.

In addition, in terms of the Share Purchase Agreements, any future claims of the Project SPVs against the

concessioning authorities which pertain to a period prior to the acquisition of the Project SPVs by the

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IL&FS Transportation Trust will be assigned to the Sponsor. Such assignment with be given effect to in

accordance with the terms of the concession agreement and the escrow agreement. The failure to meet such

obligations imposes liabilities on the IL&FS Transportation Trust which may have an adverse effect on its

business, financial condition, cash flows and results of operations and may consequently affect its ability to

make distributions to the Unitholders.

13. The inability of the NHAI or the Government of Jharkhand to pay annuities in a timely manner or at all,

may adversely affect the financial condition, results of operations and prospects of the IL&FS


There may be and have been delays associated with the payment of annuities by the concessioning

authorities for the HREL Project, the JRPICL Projects and the NKEL Project. The concessioning authority

for the JRPICL Projects is the Government of Jharkhand and the concessioning authority for the HREL

Project and the NKEL Project is the NHAI. The Government of Jharkhand and the NHAI are subject to

budgetary allocations and restrictions determined by the relevant government in power at the time. In the

event of any adverse change in budgetary allocations for the road infrastructure sector, it is possible that the

concessioning authority may default and fail to pay annuities owed, dispute the amounts owed to the

relevant Project SPV or fail to honor its obligations under the concession agreements within the prescribed

timelines. For example, with respect to JRPICL, the concessioning authority failed to provide land within

the stipulated time which led to certain cost overruns for JRPICL. Subsequently, JRPICL made a claim for

Rs. 1,507.5 million, which was partially approved for Rs. 1,064.77 million by the concessioning authority.

In addition, the Project SPVs may incur substantial costs when collecting against the relevant concessioning

authority and such costs may not be recovered in full, or at all. Any delay, cancellation or default in

payment could adversely affect the Project SPVs’ cash flows, revenues or profits, and adversely affect the

trading price of the Units.

14. HREL, JRPICL and NKEL may be subject to reductions in annuity payments due to the unavailability of

the assured lane thresholds as contained in their concession agreements.

Under the terms of their concession agreements, HREL, JRPICL and NKEL may be subject to reductions in

annuity payments in the event that HREL, JRPICL and NKEL fail to maintain the assured lane availability

thresholds specified in the concession agreements. The Projects will be deemed to be unavailable if the

Project or part thereof is closed for traffic otherwise than in accordance with the operation and maintenance

requirements set out in the relevant concession agreement or, irrespective of whether it is closed for traffic

or not, the independent engineer appointed by the concessioning authority determines that the ride quality

of the Project is below acceptable levels set out in the concession agreement or that the Project is unsafe for

operations. In the event that the annuities payable to HREL, JRPICL and NKEL is reduced, the business,

financial condition or results of operations of the IL&FS Transportation Trust may be adversely affected.

15. SBHL and JRPICL may experience delays in obtaining the completion certificate for the SBHL Project

or the CKC Project, as the case may be.

The completion targets for the Projects are set out in the concession agreements and are subject to various

risks, including, among other things, contractor performance shortfalls, unforeseen engineering problems,

force majeure events, unanticipated cost increases, changes in scope or changes in governmental policies or

budgetary allocations, any of which could give rise to delays, cost overruns or the termination of a Project.

SBHL received provisional completion certificates for the SBHL Project on October 10, 2015 and August

16, 2016 and JRPICL received a provisional completion certificate for the CKC Project on November 30,

2014. Each of the provisional completion certificates provided a list of items to be completed within a

specified time period and identified certain stretches of the road that could not be completed due to, among

other things, encumbrance free land not being made available, delays in receipt of forest clearance, delays

in approvals of roads/railways over bridges and disputes with the residents of the local villages. Neither the

SBHL Project nor the CKC Project has received a final completion certificate. Any failure to complete the

SBHL Project or the CKC Project within the required period and in accordance with the concession

agreements could result in liquidated damages or termination of the concession agreements, which could

have an adverse effect on the business, financial condition or results of operations of SBHL and JRPICL.

16. JRPICL, SBHL and NKEL may be required to incur capital expenditure due to capacity augmentation

obligations under their concession agreements and additional bidding process.

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JRPICL, SBHL and NKEL may be required to incur capital expenditure if the relevant concessioning

authority determines that the design capacity of the JRPICL Projects, the SBHL Project or the NKEL

Project has been exceeded and that the Project will need to be augmented. Under the terms of the SBHL

Concession Agreement, the design capacity of the SBHL Project is an average daily traffic of 25,000

passenger car units. In the event that the average daily traffic in any accounting year exceeds the designed

capacity, the PWDGR may cause the preparation of a detailed project report, such detailed project report

will assess, among other things, the cost which may be incurred in the undertaking of such augmentation.

PWDGR may thereafter, issue a notice to SBHL to undertake such augmentation within six months of the

notice. On SBHL’s refusal to undertake such augmentation, or failure to undertake it on the due date

intimated by the authority, the authority, in its discretion, may terminate the concession agreement, by

issuing a termination notice and making termination payments, in accordance with the provisions of the

concession agreement. Similarly, under the terms of the NKEL Concession Agreement and the JRPICL

Concession Agreements, the NHAI and the Government of Jharkhand may, at any time after the

commercial operation date, conduct a detailed project report to determine whether the capacity of the

NKEL Project or JRPICL Projects will need to be augmented. The NHAI and the Government of Jharkhand

may invite bids from third parties to undertake the capacity augmentation at the Projects and NKEL or

JRPICL will have the option to submit a bid. If NKEL or JRPICL, after participating in the bidding process,

is not the lowest bidder, NKEL or JRPICL will be given a right of first refusal to match the lowest bid.

Additionally, the concessioning authority may terminate the respective concession agreements if capacity

augmentation is not undertaken according to its specifications, or if JRPICL, SBHL and NKEL refuse to

participate in the bidding process or they fail to, or decline, to match the preferred offer. This may result in

the loss of annuity payments and toll collections.

In the event that capacity augmentation is undertaken, JRPICL, SBHL and NKEL may be required to obtain

suitable financing and incur additional costs. There can be no assurance that JRPICL, SBHL or NKEL will

be able to augment the JRPICL Projects, the SBHL Project or the NKEL Project in a cost efficient and

timely manner, or that they will do so to the satisfaction of the PWDGR, the NHAI or the Government of

Jharkhand, which could have an adverse effect on their business and results of operations.

17. Leakage of the tolls collected on the Sikar Bikaner Toll Road may adversely affect SBHL’s revenues and

earnings.

Toll receipts are primarily dependent on the integrity of toll collection systems. SBHL generates revenues

from the Sikar Bikaner Toll Road through the collection of tolls. In Indian toll roads, each motorist

generally pays a one-time entry tariff to the toll operator at the point of entry to the toll road based on the

average trip distance calculated for all users of the toll road. Tolls are collected manually by SBHL at the

toll plazas and SBHL employs toll management software to monitor its operations.

The level of revenues derived from the collection of tolls may be affected by leakage through toll evasion,

theft, fraud or technical faults in the toll systems or forced violations by users of toll roads. At times, there

may be a need to allow users of tolls roads to pass through without paying applicable tolls due to heavy

traffic build up, or there may be an inability to collect tolls due to political protests or agitations relating to

tolling. In addition, in certain circumstances, the governmental authorities or Indian courts could seek to

suspend toll collection for or during certain periods, in full or in part, which suspension would result in a

reduction in revenues. Further, toll collection errors may amount to a loss of revenue as there is an inherent

risk of under-collection of toll fees given that most users of toll roads pay in cash. Although SBHL has

systems in place to minimize leakage through fraud and pilfering, any significant failure to control leakage

in toll collection systems could have an adverse effect on the business, prospects, financial condition and

results of operations of SBHL.

18. SBHL’s revenues from tolls are subject to significant fluctuations due to changes in traffic volumes and

a decline in traffic volumes could adversely affect its revenues.

All toll revenues depend on toll receipts and are affected by changes in traffic volumes. Traffic volumes are

directly or indirectly affected by a number of factors, many of which are outside SBHL’s control, including

toll rates, fuel prices, the affordability of automobiles, the quality, convenience and travel time on alternate

routes and the availability of alternate means of transportation, including rail networks and air transport.

Moreover, SBHL’s cash flows are affected by seasonal factors, which may adversely affect traffic volumes.

The northern parts of India experience monsoon rains during the period from June or July until September

17

or October every year and this season, in particular, can affect the volume of traffic on the Sikar Bikaner

Toll Road and SBHL’s productivity. During such periods of curtailed activity, SBHL may continue to incur

operating expenses but receive reduced toll revenues. Such fluctuations may adversely affect SBHL’s

business, financial condition or results of operations.

Traffic volumes are also influenced by the convenience and extent of a toll road’s connections with other

parts of the state and national highway and toll road network, as well as the cost, convenience and

availability of other means of transportation. There can be no assurance that future changes affecting the

road network in India, through road additions and closures or through other traffic diversions or

redirections, or the development of other means of transportation, such as air or rail transport, will not

adversely affect traffic volume on toll roads.

The Sikar Bikaner Toll Road may experience high traffic levels and congestion at certain times of the day

or on certain days of the week. Although SBHL may consider possible solutions and take appropriate steps

in order to ease traffic flow and reduce congestion, there can be no assurance that the saturation problems

will be resolved under conditions that are economically satisfactory to SBHL. This could also lead to user

dissatisfaction and could potentially reduce traffic volume. The tariff structure was fixed upon acceptance

of the SBHL Project and SBHL does not have the ability to change it. In the event that there is a significant

decrease in traffic volumes on the Sikar Bikaner Toll Road, SBHL will experience a corresponding

decrease in its revenues, and the IL&FS Transportation Trust’s business, financial condition or results of

operations may be adversely affected.

Further, under the terms of the SBHL Concession Agreement, the concessioning authority is entitled to

construct an additional tollway (without payment of damages to SBHL) for use by traffic after a specified

period (ranging between eight years and 12 years) from the appointed date (as specified in the SBHL

Concession Agreement). In the event the concessioning authority develops an expressway or additional

tollway during the subsistence of SBHL Concession Agreement, it could compete with the Sikar Bikaner

Toll Road and attract users (who would have otherwise used the Sikar Bikaner Toll Road) to use the

additional tollway, thereby reducing toll collections by SBHL which may have an adverse effect on its

business, financial condition or results of operations.

While the term of the SBHL Concession Agreement is for 25 years from the appointed date, the SBHL

Concession Agreement also provides that, if the actual traffic volume falls short of, or exceeds, the target

traffic volume on specified dates mentioned in the SBHL Concession Agreement, the concession period

may be extended or reduced, as the case may be, in accordance with the formula specified in the SBHL

Concession Agreement. The traffic assessment report dated November 2016 prepared by Feedback Infra

Private Limited (the “SBHL Traffic Report”), estimates that the traffic volume on the Sikar Bikaner Toll

Road may fall short of the targeted traffic volume set out in the SBHL Concession Agreement on the

specified dates by approximately 947 PCUs or by 7.7%. Accordingly, it is estimated that the concession

period would be extended by approximately 2.75 years. There can be no assurance that such extension of

the concession period may be warranted, given that the traffic volumes disclosed in the SBHL Traffic

Report have been based on certain assumptions, none of which may actually be relevant on the specified

dates for determining actual traffic volumes on the Sikar Bikaner Toll Road.

19. The Prospective Combined Financial Information and Audited Combined Financial Statements

presented in the Transaction Update Note may not be indicative of the future financial condition and

results of operations of the IL&FS Transportation Trust.

The Audited Combined Financial Statements of the Project SPVs for the financial years ended March 31,

2016, 2015 and 2014 and for the three month periods ended June 30, 2016 and 2015 may not necessarily

reflect the consolidated financial position, results of operations or cash flows of the IL&FS Transportation

Trust, and nor will they necessarily give an indication of the financial position, results of operations or cash

flows of the IL&FS Transportation Trust or the Project SPVs in the future.

There may be certain changes to the IL&FS Transportation Trust’s cost structure and levels of

indebtedness, and these could differ materially from the historical cost structure and levels of indebtedness

presented in the Audited Combined Financial Statements. For example, there are certain costs, such as the

Investment Manager’s fees, the Project Manager’s fees and other costs relating to the IL&FS Transportation

Trust, that will be incurred by the IL&FS Transportation Trust going forward that were not incurred by the

Project SPVs historically. Additionally, the Project SPVs will be valued at fair value at the time of the

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actual acquisition of such assets by the IL&FS Transportation Trust, which will occur prior to closing any

fund raising exercise by the IL&FS Transportation Trust, for the purpose of a purchase price allocation

exercise required under Ind AS for financial reporting purposes. Furthermore, the future consolidated

financial statements of the IL&FS Transportation trust will be prepared on the basis of Ind AS 103 Business

Combinations, which is different from the accounting treatment used for the preparation of the Audited

Combined Financial Statements.

Further, the financial projections contained in the Transaction Update Note are based on historical financial

information and certain estimates and assumptions. There can be no assurance that the Project SPVs will be

able to generate sufficient cash from the operations of the Projects for the IL&FS Transportation Trust to

make distributions to eventual unitholders or that such distributions will be in line with those set out in the

section titled “Prospective Combined Financial Information”. The future financial performance of the

IL&FS Transportation Trust could vary materially from the financial projections and some of its underlying

assumptions might change or not materialize.

20. Projects awarded to the Project SPVs may be subject to legal or regulatory action and the Project SPVs

may be required to incur substantial expenses in defending any such actions and there is no assurance

that the Project SPVs will be successful in defending such actions.

The award of projects by the concessioning authorities to the Project SPVs may be subject to legal or

regulatory action. For instance, the award of the AK Project by the Government of Jharkhand to JRPICL

was challenged in a public interest litigation filed before the High Court of Jharkhand on the grounds that

the prescribed procedure required to award such contracts was not complied with. This public interest

litigation has since been dismissed with no liability to JRPICL.

JRPICL is also involved in two arbitration proceedings in relation to its construction contracts for the RRR

Project and AK Project, with the respective contractors seeking compensation for, among other things,

escalations in project costs. In this regard, the contractors for the RRR Project and AK Project have claimed

Rs. 2,380 million and Rs. 100.40 million from JRPICL, respectively.

In addition, payments made to the Project SPVs under the concession agreements may be found to be

irregular and the irregularity of such payments may result in regulatory action on, among other things, the

recovery or withdrawal of such payments. For instance, the Comptroller and Auditor General of India, in its

“Report No. 15 of 2016”, noted that the payment of Rs. 470.50 million to HREL, a bonus for HREL’s early

completion of the four-laning road between Hazaribagh and Ranchi sections of NH-33, was irregular and

alleged such payment to be an extension of undue financial benefits to HREL. The report further noted that

the payment was made by the NHAI even though the construction was completed for a part of the length

agreed under the HREL Concession Agreement. As of the date of the Transaction Update Note, no

regulatory action or inquiry has been initiated against HREL in this regard.

In another instance, pursuant to its order dated October 26, 2016, the High Court of Allahabad struck down

certain provisions of the concession agreement for a toll collection project operated by Noida Toll Bridge

Company Limited (“NTBCL”), one of the associates of the Sponsor, thereby, prohibiting NTBCL from

collecting any user fee on the project highway.

Any such legal proceedings or regulatory action may require the Project SPVs to incur substantial

expenditure and spend considerable time and resources in defending such legal proceedings, and which may

affect the Project SPVs’ results of operations. Losses in any such proceedings may lead to termination of

the concession agreement, which could have an adverse effect on its future revenues and profits.

21. There may not be any eligible acquisition opportunities from the Sponsor or third parties in the future,

which may adversely affect the IL&FS Transportation Trust’s business, financial condition, results of

operations and prospects.

The IL&FS Transportation Trust aims to achieve portfolio growth through its acquisitions growth strategy

supported by (i) one or more acquisitions through the exercise of a right of first offer under the ROFO Deed

proposed to be granted by the Sponsor, in respect of certain of its assets, and (ii) third party acquisitions.

Accordingly, in respect of future acquisitions, the IL&FS Transportation Trust will depend on the Sponsor

as a source of eligible acquisition opportunities. If the Sponsor ceases to be successful in identifying

projects that are deemed eligible projects under the ROFO Deed or to acquire other projects for

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development, the IL&FS Transportation Trust may be provided with fewer acquisition opportunities and

may not be able to invest in projects which provide attractive returns. Further, eligible acquisition

opportunities from third parties may also not materialize or the IL&FS Transportation Trust may face

increased competition from other InvITs and third parties and therefore the price at which the IL&FS

Transportation Trust is able to acquire a given asset may not be financially desirable. This may adversely

affect the IL&FS Transportation Trust’s business, financial condition and results of operations.

22. Acquisitions by the IL&FS Transportation Trust pursuant to the proposed ROFO Deed are subject to

terms to be agreed with the Sponsor and the ROFO Deed will not apply if the conditions of the ROFO

Deed are not satisfied.

The Trustee and the Investment Manager (on behalf of the IL&FS Transportation Trust) proposes to enter

into the ROFO Deed with the Sponsor pursuant to which the IL&FS Transportation Trust will have a right

of first offer to acquire certain of the Sponsor’s assets, which the Sponsor may elect to divest of. The actual

acquisition of an asset identified under the ROFO Deed will be subject to terms to be mutually agreed

between the parties through definitive agreements. There can be no assurance that such agreed terms will be

favorable to the IL&FS Transportation Trust. In addition, the right of first offer will be granted to the

IL&FS Transportation Trust on the basis of certain conditions. There can be no assurance that these

conditions will be satisfied in a timely manner, to the satisfaction of the parties to the ROFO Deed, or at all.

It is proposed that the ROFO Deed may be terminated if (i) the parties mutually agree in writing; (ii) the

Sponsor terminates the ROFO Deed in writing in the event the Investment Manager and/or any of the

affiliate companies (as defined in the proposed ROFO Deed) or any other entity designated by the Sponsor

to be the investment manager, ceases to be the investment manager of the IL&FS Transportation Trust and

a period of 12 months have passed since the date of such cessation; or (iii) if the IL&FS Transportation

Trust ceases to be listed on the Stock Exchanges or any other recognized stock exchanges. There can be no

assurance that the ROFO Deed will remain in force for the agreed period of 10 years from the relevant date,

and any early termination of the ROFO Deed may have an adverse effect on the growth of the IL&FS


Further, in the event there are minority shareholders in any of the assets identified under the ROFO Deed,

the IL&FS Transportation Trust may need to enter into additional agreements with such minority

shareholders to ensure compliance with the InvIT Regulations. There can be no assurance that such

agreements will be entered into in a timely manner, on favorable terms or at all.

Additionally, the rights of the IL&FS Transportation Trust and the obligations of the Sponsor under the

ROFO Deed will be subject to compliance with the concession agreements (and, possibly, the consent of

the concessioning authorities) and applicable laws. The transfer of the equity shares in such road assets may

also require approvals from other governmental authorities, lenders or other relevant third parties. There can

be no assurance that such approvals will be granted in time, or at all. No assurance can be given that the

Investment Manager or the Sponsor will be able to agree on the terms of any acquisition, or if such terms

were agreed, that the transaction would be approved by Unitholders. Accordingly, the Investment

Manager’s ability to follow through with its strategy to grow the IL&FS Transportation Trust may be

adversely affected.

23. A substantial portion of the IL&FS Transportation Trust’s revenues are derived from JRPICL and an

inability to replenish the portfolio upon expiry of the concession agreements for the JRPICL Projects

may adversely affect the results of operations of the IL&FS Transportation Trust.

A substantial portion of the IL&FS Transportation Trust’s revenues will be derived from JRPICL on

account of JRPICL operating five of the eight projects in the IL&FS Transportation Trust’s initial portfolio.

For the financial years 2016, 2015 and 2014, the annuity received by JRPICL constituted 62.4%, 56.2% and

38.4% of the total combined annuities received by the Project SPVs for the corresponding periods. Further,

the JRPICL Projects are all located within the State of Jharkhand and all the concession agreements are

entered into with the Government of Jharkhand. Accordingly, the business, financial condition and results

of operations of JRPICL are subject to the economic, political and legal developments in Jharkhand as well

as any geographical location specific risks. Further, as the concession end dates of the JRPICL Projects are

all within two years of each other, in the event that the IL&FS Transportation Trust is unable to replenish its

portfolio upon expiry of the concession agreements for the JRPICL Projects, the business, financial

condition and results of operations of the IL&FS Transportation Trust could be adversely affected.

20

24. A significant portion of the Project SPVs’ operations and revenues are geographically concentrated in

Jharkhand and the IL&FS Transportation Trust is therefore exposed to certain geographical risks.

A significant portion of the IL&FS Transportation Trust’s operations and revenues will be geographically

concentrated in Jharkhand. Six out of eight of the projects which will be acquired by the IL&FS

Transportation Trust – the projects maintained by HREL and JRPICL – are located in Jharkhand. The

IL&FS Transportation Trust will be significantly dependent on the general economic conditions, market

conditions and natural disasters in Jharkhand as a result of such geographic concentration. Any regional

slowdown in economic activity could adversely affect the business, financial condition and results of

operations of the IL&FS Transportation Trust.

25. The Project SPVs may be required to pay additional stamp duty if the concession agreement is subject to

payment of stamp duty as a deed creating leasehold rights, or as a development agreement.

Currently, concession agreements are treated as agreements which are not a lease deed and stamp duty of

Rs. 100.00 is typically paid for such concession agreements. Stamp duty authorities of certain states in India

have issued notices to some concessionaires alleging inadequate stamp duty on the concession agreements

executed between the concessionaires and the NHAI. The stamp authorities allege that since the concession

agreements relate to the letting of tolls to the concessionaires in the form of leases, or as development

agreements, such agreements were required to be stamped as lease agreements or development agreements,

as applicable. Accordingly, concession agreements that have not been stamped as such could be considered

to be inadequately stamped. The High Courts of Allahabad and Madhya Pradesh have also held that a

concession agreement ought to be stamped as a lease agreement and have upheld the imposition of a higher

stamp duty on such agreements.

The stamp duty for a lease agreement or a development agreement ranges between 1.0% and 11.0% of the

annual rent or premium payable or the market value of the property. Furthermore, stamp duty authorities

may impose penalty for payment of inadequate stamp duty, which could extend up to 10 times of the

amount of the stamp duty payable.

If any of the concession agreements were determined to be inadequately stamped, then such agreements

would be inadmissible as evidence in any legal action, until the deficient amount of stamp duty together

with penalties, if any, is paid. Any deficiently stamped documents can also be impounded by every person

having authority, by law or consent, to receive evidence or every person who is in-charge of a public office.

Such persons impounding the deficiently stamped documents can either levy the appropriate stamp duty and

penalty or send it to revenue authorities for that purpose. Additionally, a person who signs an instrument

chargeable with stamp duty will be subject to a fine if such instrument is not duly stamped.

Concession agreements contain change in law provisions which extend to a change in the interpretation or

application of any Indian law by a court of record after the date of the concession agreement or the

submission of the bid documents, as the case may be. Under the terms of the concession agreements, if any

financial burden exceeding a certain prescribed threshold is imposed on it as a result of such change in law,

then the relevant concessionaire is entitled to approach the concessioning authority to amend the concession

agreement or seek compensation to place the concessionaire in its former financial condition. However,

there can be no assurance that the relevant concessioning authority will consider additional stamp duty on

the concession agreements as a change in law for which they will amend the concession agreement or agree

to provide compensation to the concessionaire. Any disagreement between the relevant concessionaire and

the concessioning authority may result in arbitration proceedings between the parties which would lead to

increased costs.

In addition, the Sponsor has not provided indemnities to the IL&FS Transportation Trust under the

proposed Share Purchase Agreements for any liability that the Project SPVs may incur due to a demand for

payment of higher stamp duty on the concession agreements.

Any imposition of a demand for payment of a higher stamp duty or imposition of penalty would increase

the costs of the Projects, to the extent such additional costs are not recoverable from the concessioning

authorities, and could adversely affect the business, results of operations and prospects of the Project SPVs.

21

26. The IL&FS Transportation Trust does not own the trademarks to be used by it for its business and its

ability to use such trademarks may be impaired.

The trademarks for the “IL&FS” name and “IL&FS” logo are registered in the name of, and owned by,

IL&FS. However, pursuant to the Name License Agreement, IL&FS has granted the IL&FS Transportation

Trust a license to use, for a period of three years, the trademarks for “IL&FS” name and “IL&FS” logo in

connection with its business. Due to the restrictions on the use of the IL&FS trademarks as set out in the

name license agreement, the ability of the IL&FS Transportation Trust to use such trademarks may be

impaired in certain circumstances.

Further, in the event of a renewal of the licence, the IL&FS Transportation Trust may be required to pay a

licence fee for the use of the name and logo.

27. The regulatory framework governing infrastructure investment trusts in India is recent and the

interpretation thereof may involve legal uncertainties in relation to the implementation and

interpretation of the InvIT Regulations, increase compliance costs, and thereby adversely affect the

business, financial condition and results of operations of the IL&FS Transportation Trust.

The InvIT Regulations were notified in 2014 and there is limited guidance on the interpretation and scope

of the provisions of the InvIT Regulations. Uncertainty in the application or interpretation of the InvIT

Regulations due to an absence, or a limited body, of administrative or judicial precedent or implementation

of any amendment to, or change in, law, regulation or policy may be time consuming and costly for the

IL&FS Transportation Trust to resolve and may affect the viability of its current business or restrict its

ability to grow its business in the future.

Currently, uncertainties relating to the InvIT Regulations apply to, among other things:

the definitions of “associates” and “related parties of the InvIT” provided under the InvIT

Regulations;

the method of calculating net distributable cash flows for the purposes of declaring

distributions to be made to the Unitholders;

the ability of an InvIT to incur debt or to raise funds through the issuance of listed or unlisted

debt securities due to uncertainty of the legal status of an InvIT;

the manner in which a privately listed InvIT transitions to a publicly listed InvIT; and

the applicable procedure for delisting units of the InvIT and winding up the InvIT.

While SEBI has introduced consultation papers, draft amendments and guidelines proposing clarifications

in relation to some of these issues, such changes are yet to be notified.

Since the regulatory framework is relatively untested, it is difficult to anticipate how any new laws,

regulations or standards or future amendments to the InvIT Regulations will affect infrastructure investment

trusts and the infrastructure sector in India, and such amendments may impair the IL&FS Transportation

Trust’s ability to comply with the regulations, conduct its business, compete effectively or make

distributions. Any such changes may adversely affect the IL&FS Transportation Trust’s business, results of

operations and prospects, to the extent that it is unable to suitably respond to and comply with any such

changes in applicable law and policy.

28. Changes in legislation or the rules relating to tax regimes could adversely affect the IL&FS

Transportation Trust’s business, prospects and results of operations.

The Project SPVs’ and the IL&FS Transportation Trust’s businesses and financial performance could be

adversely affected by changes in law, or interpretations of existing laws, rules and regulations, or the

promulgation of new laws, rules and regulations in India, applicable to them and their businesses. The

governmental and regulatory bodies in India may notify new regulations and/or policies, which may require

them to obtain approvals and licenses from the government and other regulatory bodies, or impose onerous

requirements and conditions on their operations, in addition to those which they are currently undertaking.

Any such changes and the related uncertainties with respect to the implementation of new regulations may

have an adverse effect on the IL&FS Transportation Trust’s business, financial condition and results of

operations. For instance, in November 2016, the Government of India demonetized certain high-value

denominations of Indian currency. In order to avoid difficulties to highway users, the Government of India

22

decided to suspend payment of fees at toll plazas on all national highways for two days, which was

subsequently extended to two weeks. The impact of such demonetization in the long term on the Indian

economy and, indirectly, on the Project SPVs’ businesses is uncertain.

The application of various Indian sales, value-added and other tax laws, rules and regulations to their

services, currently or in the future, may be subject to interpretation by applicable authorities, and if

amended/notified, could result in an increase in their tax payments (prospectively or retrospectively) and/or

subject them to penalties, which could affect their business operations. Further, the Government of India

has proposed a comprehensive national goods and services tax (“GST”) regime that will combine taxes and

levies by the central and state governments in India into a unified rate structure. Given the limited

availability of information in the public domain concerning the GST, there can be no assurances as to the

tax regime following implementation of the GST. The implementation of this new structure may be affected

by any disagreement between state governments, which could create uncertainty. Any such future

amendments may affect their overall tax efficiency, and may result in significant additional taxes becoming

payable.

The General Anti-Avoidance Rules (“GAAR”) are proposed to be effective from April 1, 2017. There are a

number of tax consequences of the GAAR provisions being applied to an arrangement and one of which

could result in a denial of tax benefit. The GAAR provisions may have a material adverse tax impact of the

Project SPVs and the IL&FS Transportation Trust.

If international tax reforms such the Base Erosion and Profit Sharing measures of the Organization for

Economic Co-operation and Development are adopted by India, the Project SPVs may be subject to

enhanced disclosure and compliance requirements and a resultant increase in their costs related to such

compliance.

29. The IL&FS Transportation Trust may enjoy certain benefits under Section 80-IA of the Indian Income

Tax Act, 1961 (“IITA”) in relation to the Project SPVs and any change in these tax benefits applicable to

the IL&FS Transportation Trust may adversely affect its results of operations.

Under the provisions of section 80-IA of the IITA, the Project SPVs are eligible for tax holiday for any 10

consecutive assessment years out of 20 years beginning from the year in which the undertaking or

enterprise develops and begins to operate any infrastructure facility. As a result of the tax holiday available

to the Project SPVs, the taxable profits derived by the Project SPVs from developing, operating and

maintaining any infrastructure facility (including toll roads) will not be taxable under the normal provisions

of the ITA during the tax holiday period. The Project SPVs will only be subject to minimum alternate tax

(“MAT”) if the Project SPVs have a book profit as required to be computed under section 115JB of the

ITA. Any change in the tax benefits under section 80-IA and/or the provisions of MAT may have an impact

on the income tax liability of the Project SPVs and may consequently impact the amount available for

distribution by the Project SPVs to the IL&FS Transportation Trust.

30. Investors may be subject to Indian taxes arising out of capital gains on the sale of the IL&FS

Transportation Trust’s units listed on a stock exchange.

Under the provisions of IITA, income that is taxable on the transfer or sale of units listed on an Indian stock

exchange is as follows:

(i) Gains arising on sale of units held by both resident as well as non-resident investors for a period

exceeding 36 months immediately preceding the date of sale are in the nature of long term capital gain

and would be exempt. The exemption is on the basis that transfer of Units on a stock exchange is

subjected to securities transaction tax (“STT”).

(ii) Gains arising on sale of units held by both resident as well as non-resident investor for a period of 36

months or less are in the nature of short term capital gain (“STCG”) and would be chargeable to tax at

the rate of 15.0% (plus applicable surcharge and cess). The applicability of rate of 15.0% is on the basis

that transfer of Units on a stock exchange is subjected to STT.

(iii) LCTG arising on sale of units otherwise than on the floor of recognized stock exchange is taxable at

the rate of 20.0% (plus applicable surcharge and cess) both in the hands of resident as well as non-

resident investor. STCG on sale of units otherwise than on the floor of recognized stock exchange is

23

taxable at the rate of 30.0% (plus applicable surcharge and cess) and 40.0% in the case of a resident

and non-resident investor respectively.

In respect of a non-resident investor, the tax rates and the consequent taxation mentioned above shall be

further subject to any benefits available under the double taxation avoidance agreement, if any, between

India and the country of residence of the non-resident investor, subject to providing the prescribed

information.

The above concessional tax treatment if amended by the Government of India, may have an adverse tax

impact in the hands of the Unitholders.

31. The income of the IL&FS Transportation Trust in relation to which pass through status is not granted

under the IITA may be chargeable to Indian taxes.

Under the provisions of the IITA, the total income of the IL&FS Transportation Trust other than capital

gain, interest and dividend income from the Project SPVs, would be charged to tax at the maximum

marginal rate (“MMR”). MMR is defined under the provisions of the IITA to mean the rate of income-tax

(including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case

of, inter alia, association of persons (“AOP”) as specified in the Finance Act of the relevant year. Under the

Finance Act, 2016, the MMR applicable in the case of an AOP is 30.0% (plus applicable surcharge and

cess).

On one hand, the income of the IL&FS Transportation Trust in relation to which pass through status is not

accorded should be chargeable to tax at the rate of 30.0% (plus applicable surcharge and cess).

On the other hand, it may be argued that in the case of an AOP trust, the applicable tax rate will be the

MMR applicable to its beneficiaries. If any beneficiary is chargeable to MMR at a rate higher than the rate

applicable to other beneficiaries, the income of an AOP trust attributable to the share of such beneficiary

will be taxed at a higher applicable rate. The MMR in the case of a resident company is currently 30.0%

(plus applicable surcharge and cess) and 40.0% (plus applicable surcharge and cess) in the case of a non-

resident company. Accordingly, the IL&FS Transportation Trust would be taxed at 30.0% (plus applicable

surcharge and cess) except income attributable to the share of a non-resident company which will be taxed

at 40.0% (plus applicable surcharge and cess).

As there are two divergent views, there is a possibility that the matter may be litigated if the latter view is

taken up by the tax authorities of India.

24

OVERVIEW OF ALL KEY PARTIES INVOLVED IN THE TRANSACTION

Description of the Investment Manager

IAAL, the Investment Manager, is a subsidiary of IIML which has managed a number of India’s infrastructure

investments. IIML managed/ advised funds have, as of the date, invested across 31 infrastructure investments.

IAAL is the Indian advisor to two Mauritius based funds (the “Funds”). The Funds have, as of the date of this

Transaction Update Note, made 17 investments aggregating to Rs. 11.82 billion. IAAL has an experience of

over nine years in fund management.

The Project Manager

ITNL is proposed to be appointed as the project manager pursuant to the Project Implementation and

Management Agreements.

25

BUSINESS

OVERVIEW

The IL&FS Transportation Trust is an Indian infrastructure investment trust sponsored by ITNL, one of the

leading players in the surface transportation infrastructure business in India with a sizeable build-own-operate

project portfolio of approximately 14,699.40 Lane Kilometers. The IL&FS Transportation Trust will acquire a

100.0% equity interest in each of four road infrastructure companies, HREL, JRPICL, SBHL and NKEL. The

initial project portfolio will include eight road projects, comprising approximately 1,994.22 Lane Kilometers,

located across three states in India and held through and operated and maintained by the Project SPVs.

Attractive industry dynamics, driven by favorable government policies, long-term and steady cash flows which

the Project SPVs are expected to provide, and the potential for growth through the proposed ROFO Deed, are

the key highlights of the IL&FS Transportation Trust.

The IL&FS Transportation Trust has been established with the principal objectives of investing in Indian road

infrastructure projects, special purpose Indian road infrastructure companies and securities of Indian road

infrastructure companies, in accordance with the InvIT Regulations. The IL&FS Transportation Trust’s business

will be managed by IAAL, the Investment Manager, with the principal objective of providing eventual

unitholders with stable and regular distributions as well as long-term distribution per Unit (“DPU”) growth.

Although the initial project portfolio of the IL&FS Transportation Trust will primarily consist of projects which

are revenue generating, the Investment Manager will also have the flexibility to acquire new projects through

the proposed ROFO Deed and through acquisitions from third parties.

IAAL is a wholly owned subsidiary of IIML, a private equity fund manager in India. IIML has raised and

managed US$ 3.20 billion of private equity funds over the last two decades. These funds have been raised from

sovereign wealth funds, pension funds, insurance companies and institutional investors. IIML managed funds

have invested in some of India’s earliest public private partnership road projects, the Indian cellular telecom

space and city-wide gas distribution networks and it has also invested in sectors such as logistics, power and

waste management. Four of IIML’s managed funds, the South Asian Regional Apex Fund (vintage: 1995), the

AIG India Sectoral Equity Fund (vintage: 1996), the India Auto Ancillary Fund (vintage: 1998) and the India

Project Development Fund (vintage: 2000) have been fully divested, and illustrate IIML’s experience across

fund cycles. IIML is listed on the NSE and BSE.

ITNL, the Sponsor, is a developer, operator and facilitator of surface transportation infrastructure projects,

taking projects from conceptualization through commissioning to operation and maintenance. The IL&FS

Transportation Trust’s portfolio of projects will also be managed by ITNL as the Project Manager, which will

undertake the development (where applicable), operation, maintenance and management and supervision of the

Projects. Following completion of any fund raising exercise by the IL&FS Transportation Trust, the Sponsor

expects to hold a 26.0% beneficial interest in the IL&FS Transportation Trust. Further, the IL&FS

Transportation Trust proposes to enter into the ROFO Deed with the Sponsor pursuant to which it will have a

right of first offer to acquire certain of the Sponsor’s eligible existing and future assets which the Sponsor elects

to dispose of. Currently, the Sponsor’s project portfolio consists of 31 road projects (including the Projects),

comprising approximately 14,699.40 Lane Kilometers.

The Sponsor, Investment Manager and Project Manager of the IL&FS Transportation Trust are subsidiaries of

IL&FS.

The Trustee is an independent debenture trustee registered with SEBI and affiliated with the Vistra Group, an

international trust and corporate service provider based in Singapore.

The IL&FS Group form one of the leading infrastructure development and finance conglomerates in India with

over 25 years of experience in infrastructure project development in diverse roles such as advisor, arranger,

investor, sponsor, developer and operator.

26

The proposed initial project portfolio of the IL&FS Transportation Trust will comprise eight Projects which are

operated and maintained by the four Project SPVs:

Map not to scale

*As of September 30, 2016 #The SBHL Concession Agreement provides that, if the actual traffic volume falls short of, or exceeds, the target traffic

volume on specified dates mentioned in the SBHL Concession Agreement, the concession period may be deemed to be

extended or reduced, as the case may be, in accordance with the formula specified in the SBHL Concession Agreement. The

SBHL Traffic Report estimates that the traffic volume on the Sikar Bikaner Toll Road may fall short of the targeted traffic

volume set out in the SBHL Concession Agreement on the specified dates by approximately 947 PCUs or by 7.7%.

Accordingly, SBHL currently estimates that the concession period would be extended by approximately 2.75 years. Such

extension, however, remains subject to actual traffic volume tests to be undertaken on the specified dates in accordance with

the SBHL Concession Agreement.

Apart from one of the JRPICL Projects and the SBHL Project, which have received their respective provisional completion

certificates, the remaining Projects have received their final completion certificates.

The total annuity collections, attributable to JRPICL, HREL and NKEL, for the three months ended June 30,

2016 and 2015 and for the financial years 2016, 2015 and 2014 in respect of the Project SPVs (other than

SBHL) were Rs. 1,427.12 million, Rs. 1,427.12 million, Rs. 6,099.60 million, Rs. 5,252.10 million and Rs.

5,508.13 million, respectively. Toll collections for the three months ended June 30, 2016 and for the financial

year 2016, in respect of SBHL, were Rs. 85.68 million and Rs. 158.09 million, respectively.

KEY INVESTMENT HIGHLIGHTS (STRENGTHS)

The Investment Manager believes the following to be the key strengths of the IL&FS Transportation Trust:

Sizeable portfolio of road assets generating a steady and attractive yield

The IL&FS Transportation Trust will have a sizeable initial portfolio consisting of eight operational road

projects having an aggregate of 1,994.22 Lane Kilometers which are held through the Project SPVs. The

Projects are spread across three geographic locations – six are in the State of Jharkhand, one is in the State of

Rajasthan and one is in the State of Karnataka. The concessioning authorities for the Projects are the NHAI, the

PWDGR and the Government of Jharkhand. The Investment Manager believes that the IL&FS Transportation

Trust’s sizeable portfolio and multiple revenue streams will support the IL&FS Transportation Trust’s ability to

make steady distributions to eventual unitholders.

The IL&FS Transportation Trust will distribute at least 90.0% of its net distributable cash flows to eventual

unitholders. The Investment Manager expects the income generated by the Projects pursuant to the various

27

concession agreements to support these distributions. With seven of the Projects being annuity projects, the

Investment Manager expects the IL&FS Transportation Trust to receive stable revenue from HREL, JRPICL

and NKEL for the duration of the concession agreements entered into for those Projects. The SBHL Project is a

toll project which allows the IL&FS Transportation Trust to benefit from any increase in traffic volume and toll

rates and, as a result, a corresponding increase in tolls collected from the Project.

The Project SPVs have entered into long term concession agreements with the relevant concessioning

authorities, which generally have a term of between 15 and 25 years, having, on a collective basis, an average

residual project life of approximately 12 years as of September 30, 2016, thereby providing long term, regular

and predictable cash flows to the IL&FS Transportation Trust. The Investment Manager believes that the Project

SPVs’ long term concession agreements, operation and management agreements and other contractual

arrangements contribute to the predictability of cash flows and operating income of the IL&FS Transportation

Trust.

Limited execution and operational risk

The Investment Manager intends for the IL&FS Transportation Trust to own and operate predominantly such

projects as have already been completed and are generating revenue or where the construction of the projects are

in advanced stages. The HREL Project became commercially operational on September 15, 2012, the RPR I

Project, the RPR II Project, the RRR Project, the AK Project and the CKC Project (to the extent completed)

(together, the “JRPICL Projects”) became commercially operational between September 21, 2012 and

November 30, 2014, the SBHL Project became commercially operational on October 10, 2015 (to the extent

completed) and the NKEL Project became commercially operational on July 19, 2004. All the Projects are

currently generating revenue. Except for the CKC Project and the SBHL Project, where provisional completion

certificates have been issued for completion of 88.9% and 98.8%, respectively, of each project, and final

completion certificates are pending, all the Projects have received their final completion certificates. As a result,

the Investment Manager believes that the IL&FS Transportation Trust does not face any material risks

associated with constructing the Projects.

The Investment Manager believes that the IL&FS Transportation Trust’s business model mitigates the

developmental, financial viability and construction risks relating to road infrastructure projects in India, such as

the risks associated with land acquisition, obtaining relevant approvals and obtaining adequate financing for the

Projects.

Further, the Project SPVs have entered into O&M agreements with ITNL (the “O&M Agreements”), one of the

most experienced road infrastructure developers and O&M companies in India with over 15 years of experience

(in the case of major maintenance for NKEL, Punj Lloyd Limited is also a service provider). The O&M

Agreements provide for pre-determined costs until the end of the concession period, relating to ITNL’s and Punj

Lloyd Limited’s services, as the case may be, as the operations and maintenance service provider of the

Projects. Additionally, ITNL, as the O&M operator of the Projects, has agreed to indemnify the Project SPVs

and the relevant concessioning authorities against any loss of annuity or tolls, as the case may be, on account of

breach of provisions of the O&M Agreement, including as a result of the non-availability of the Projects as well

as any additional costs that may be incurred as a result of such breach. However, under the terms of the O&M

Amendment Agreements which have not been entered into and are only proposed at this time, such indemnity

will be limited to the extent of the fees received for the particular financial year by ITNL for its services. As a

result, the total expenditure with respect to each project may be predicted with some degree of certainty, and

with respect to the HREL Project, the JRPICL Projects and the NKEL Project, being annuity projects, provide

for predictable profitability and cash flows with some degree of certainty.

Additionally, SBHL has designed and implemented monitoring processes in order to limit any pilferage or toll

leakage at the toll plazas for the SBHL Project. These include providing automatic toll receipts, maintenance of

toll registers, cash amount tally with the information technology enabled systems at the toll plazas, automatic

vehicle classification systems to classify vehicles for the amount of toll to be collected and close-circuit

television cameras.

Strong Sponsor and the IL&FS Group, which have proven track records in infrastructure development

in India

The Sponsor, ITNL, is one of the leading players in the road infrastructure business in India with a sizeable

BOT project portfolio. The Sponsor is a developer and operator of surface transportation infrastructure projects,

28

taking projects from conceptualization through commissioning to operation and maintenance. The Sponsor’s

pan-India presence in the road segment is illustrated by its interests in a diverse project portfolio of 31 road

projects (including the Projects) of approximately 14,699.40 Lane Kilometers, comprising a mix of annuity-

based and toll-based projects. The Sponsor’s international operations comprise O&M expertise through Elsamex

SA, which operates in the road segment and is spread across Spain, Portugal, Latin America, UAE, Ukraine,

Botswana and China.

ITNL is a subsidiary of IL&FS. The IL&FS Group is one of the leading infrastructure development and finance

conglomerates in India with over 25 years of experience developing infrastructure projects in diverse roles such

as advisor, arranger, investor, sponsor, developer and operator. The IL&FS Group is one of the pioneers of the

public-private partnership model of infrastructure development in India, where infrastructure projects are

developed in conjunction with central and state governments, financing agencies, private sector partners and

communities. IL&FS’ key shareholders include major Indian and international institutions such as the Life

Insurance Corporation of India, ORIX Corporation (Japan), Abu Dhabi Investment Authority, Housing

Development Finance Corporation Limited, Central Bank of India and the State Bank of India.

Ability to expand portfolio through the proposed ROFO Deed with the Sponsor and third party

acquisitions

The Investment Manager intends to develop and expand the IL&FS Transportation Trust’s portfolio of projects

by capitalizing on opportunities proposed to be provided by the Sponsor to selectively undertake strategic

acquisitions of both completed road assets and assets that are in advanced stages of construction.

In this regard, under the proposed ROFO Deed, whereby IL&FS Transportation Trust will have a right of first

offer to acquire certain of the Sponsor’s eligible existing and future assets which the Sponsor elects to dispose

of. The Investment Manager and the Sponsor will agree that the Sponsor may offer any of the road projects in its

project portfolio, including any of the four projects that have been identified under the ROFO Deed. The

Sponsor’s project portfolio consists of 31 road projects (including the Projects), comprising approximately

14,699.40 Lane Kilometers. The projects that have been identified under the proposed ROFO Deed are:

Pune Sholapur Road

Development

Company Limited

Khed Sinnar

Expressway Limited

Baleshwar

Kharagpur

Expressway Limited

Chenani Nashri

Tunnelway Limited

Project Type Toll Toll Toll Annuity

State Maharashtra Maharashtra Orissa and West

Bengal

Jammu & Kashmir

Authority NHAI NHAI NHAI NHAI

Lane Kilometers 571.30 557.24 477.20 38.40

Tenure Approximately 19

years and 9 months

20 years 24 years 20 years

Commercial

operation date

August 23, 2013 Pending – under

construction

January 1, 2013 Pending – under

construction

The Investment Manager, in selecting any road infrastructure projects to acquire, will consider projects which

are completed and revenue generating or where construction of the projects are in advanced stages and which

will allow the IL&FS Transportation Trust to acquire at least 51.0% of such projects.

The Investment Manager believes that it will be able to exploit the IL&FS Group’s established network of

relationships and extensive knowledge and experience in the infrastructure sectors in India in its management of

the IL&FS Transportation Trust’s assets and sourcing of new projects in line with the acquisition strategy of the

IL&FS Transportation Trust.

In addition to future acquisition opportunities under the proposed ROFO Deed, the Investment Manager also

hopes to actively source and acquire quality assets from third parties on a case-by-case basis, on behalf of the

IL&FS Transportation Trust. See “Business Strategy – Growth from Acquisitions” below.

Conservative capital structure of the IL&FS Transportation Trust to support future acquisitions

Once the proposed fund raising exercise is completed, the IL&FS Transportation Trust’s balance sheet will

provide flexibility to incur additional debt in order to support the Investment Manager’s strategy of acquiring

additional assets to add to the IL&FS Transportation Trust’s initial portfolio of assets. As a result, any future

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acquisitions are not expected to, in the first instance, be funded through the issue of new units, which would

dilute the percentage of Units held by the initial unitholders. However, the method of funding each new

acquisition will be determined on a case-by-case basis. Also see, “Business Strategy ─ Prudent capital

management policy” below.

Attractive industry dynamics driven by favorable government policies

India has the second largest road network in the world with over 5.23 million kilometers of roads made up of

national highways, expressways, state highways, major district roads, other district roads and village roads.

Roads are the most common mode of transportation and account for approximately 86.0% of passenger

traffic. As of financial year 2016, India’s road network consists of 100,475 kilometers of national highways

and expressways, 148,256 kilometers of state highways and 4,983,579 kilometers of other roads. (Source:

CRISIL Research: Report on Roads industry in India, September 2016)

Infrastructure development is primarily driven by the Government of India’s initiatives for creating essential

facilities. The Government of India has implemented the National Highway Development Programme and the

Pradhan Mantri Gram Sadak Yojana as programs to encourage investments in the infrastructure sector.

(Source: CRISIL Research: Report on Roads industry in India, September 2016)

During financial year 2016, CRISIL Research estimates that 65.0% of total freight traffic in India was carried by

roads, an increase from financial year 2010 where roads accounted for approximately 58.0% of the total freight

traffic in India. (Source: CRISIL Research: Report on Roads industry in India, September 2016)

With the increased stress on road infrastructure due to the increase in vehicular traffic, combined with the

development policies of the Government of India and various state governments, the IL&FS Transportation

Trust will be ideally placed to take advantage of the increased funding in the road infrastructure sector and the

potential for increases in traffic volume across the Projects and any additional projects it may acquire in the

future.

Experienced management team

The Board of Directors and the management team of the Investment Manager and the Project Manager comprise

(or will comprise) individuals with relevant credentials, expertise and experience in the road infrastructure

business in India. The IL&FS Transportation Trust has an experienced management team at the Investment

Manager and the Project Manager which comprise (or will comprise) seasoned professionals with extensive

management and/or operational experience in the road infrastructure sector, which the Investment Manager

believes should help deliver strong financial performances consistently for the IL&FS Transportation Trust and

which will also help with evaluating acquisition targets for the IL&FS Transportation Trust in the future.

Further, the Trustee, Vistra ITCL (India) Limited, is an independent fiduciary services provider appointed to

hold the assets of the IL&FS Transportation Trust for the benefit of the eventual unitholders.

BUSINESS STRATEGY

The Investment Manager believes the following to be the key strategies of the IL&FS Transportation Trust:

Prudent capital management policy

The Investment Manager intends for the IL&FS Transportation Trust to optimize the capital structure of the

IL&FS Transportation Trust in order for it to retain enough flexibility to make acquisitions in the future. To

accomplish this, the Investment Manager intends to minimize the cost of capital for the IL&FS Transportation

Trust by employing an appropriate mix of debt and equity over the long term. After the completion of the

proposed fund raising exercise, to the extent required and appropriate to acquire or develop assets in the future,

the Investment Manager will consider securing debt from diversified funding sources ranging from financial

institutions to the debt capital markets. For future projects, the Investment Manager may seek to meet the

IL&FS Transportation Trust’s capital requirements through cash flows from the Projects, debt financing and the

issue of new units. In addition, the Investment Manager will, through the Project Manager (when appointed),

actively engage with the relevant concessioning authorities in relation to the Projects on a regular basis, in order

to mitigate collection risk and operational risk, if any, both in terms of payment and timing.

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Active asset management

The Project Manager has a comprehensive framework for all O&M activities relating to the Projects. The

principal objective is to incorporate industry best practices in operating and maintaining the Projects. This pro-

active approach to O&M activities seeks to employ both preventive and corrective measures in order to optimize

the long term performance of each Project and reduce, as much as possible, any periods where the roads are

unavailable for users, which may result in a loss of revenue.

In addition, the Investment Manager will work with the Project Manager to improve the efficiency of toll

receipts collection on the two lane highway with paved shoulders of approximately 539.74 Lane Kilometers of

the Sikar-Bikaner section of NH-11 via Sikar bypass and Bikaner bypass ending on NH-89 in the State of

Rajasthan (the “Sikar Bikaner Toll Road”) by the use of technology for toll collection and decongesting the

toll booths, and by preventing the potential for theft, evasion, fraud, error and technical faults in toll collection.

The Investment Manager also intends to be selective with respect to any toll projects it acquires in the future and

will consider factors such as access to important locations in the vicinity, connecting roads, industrial and

manufacturing hubs, connectivity with raw materials, availability of the relevant approvals, ease of complying

with laws and also evaluating competing modes of transportation.

Growth from acquisitions

The Investment Manager intends to pursue opportunities for acquisitions that will expand the IL&FS

Transportation Trust’s business and provide attractive cash flows and yields, and opportunities for future income

and capital growth. In evaluating future acquisition opportunities, the Investment Manager intends to evaluate

acquisitions of both completed and are revenue generating road assets and assets that are in advanced stages of

construction.

In this regard, the Investment Manager proposes to enter into the ROFO Deed with the Sponsor, pursuant to

which the Sponsor will agree, subject to certain conditions, to give the IL&FS Transportation Trust a right of

first offer to acquire certain of the Sponsor’s eligible existing and future assets, including the assets that have

been identified under the ROFO Deed. The Sponsor currently has a portfolio of 31 assets at various stages of

completion (including the Projects).

In addition, the Investment Manager believes that due to trends in the industry, a number of acquisition

opportunities are currently available and such opportunities are likely to increase. These trends include the

potential divestment of assets by highly leveraged private companies and by financial and private equity

investors seeking to exit their investments. The Investment Manager hopes to take advantage of these

opportunities by actively sourcing and acquiring quality assets from such third parties on a case-by-case basis.

The Investment Manager believes that it will be able to leverage the Sponsor’s and IL&FS’ established network

of relationships and contacts, extensive knowledge and experience in the road infrastructure sector in India to

implement its acquisition strategy.

The Investment Manager intends to evaluate and pursue the above opportunities for asset development and

acquisition based on investment criteria and factors it believes are designed to ensure that such development or

acquired assets will provide attractive cash flows and yields. These criteria include:

the impact of the acquisition on the IL&FS Transportation Trust’s expected distributions;

the terms and duration of the concession agreement, and O&M agreements and other relevant agreements

with respect to the asset;

the location of the asset;

the expected cash flows from the asset;

the concessioning authority and the engineering, procurement and construction contractor for the asset;

the availability of project approvals and land;

the price of the asset;

the maintenance cost of the asset;

the availability and prospective terms of financing;

the extent of any ongoing or potential disputes that the project may have;

the traffic potential from the asset; and

any other factor that may have an impact on the profitability of the asset.

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STRUCTURE OF THE TRUST

Overview

The Sponsor settled the IL&FS Transportation Trust, pursuant to a trust deed dated October 13, 2016 in

accordance with the provisions of the Indian Trust Act, 1882. The IL&FS Transportation Trust will be

registered in accordance with the provisions of the InvIT Regulations. The IL&FS Transportation Trust’s

principal investment objectives are to invest in Indian road infrastructure projects, special purpose Indian

infrastructure road companies and securities of Indian road infrastructure companies, in accordance with the

InvIT Regulations.

The proposed initial portfolio of the IL&FS Transportation Trust will comprise the four Project SPVs,

comprising eight Projects, seven of which are annuity-based and one of which is toll-based. The IL&FS

Transportation Trust proposes to acquire the Projects through the acquisition of the entire issued and paid-up

equity share capital of HREL, JRPICL, SBHL and NKEL from ITNL.

A graphical representation of the expected structure of IL&FS Transportation Trust is set out below:

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An overview to the expected cash flows of the IL&FS Transportation Trust is set out below:

BRIEF DESCRIPTION OF THE ASSETS

The initial project portfolio of the IL&FS Transportation Trust is proposed to comprise eight projects which are

operated and maintained by the four Project SPVs. Of the eight projects, seven are annuity-based road

infrastructure assets and one is a toll-based road infrastructure asset. In an annuity-based project, the

concessionaire relies on annuity payments that are payable at regular intervals by the concessioning authority

after the project begins commercial operations. In a toll-based project, the concessionaire is granted the right to

collect user fees which are fixed by the concessioning authority in accordance with applicable law over the

concession period. The Projects are all generating revenue (although two Projects have currently received only

provisional completion certificates and await receipt of final completion certificates). The Project SPVs have

entered into O&M Agreements to operate and maintain the Projects in accordance with the relevant concession

agreement. The O&M Agreements are valid until the expiry, or the early termination, of the concession

agreements.

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The table below reflects certain salient features of the Projects:

HREL JRPICL SBHL NKEL

Description

A four lane highway with

an aggregate

length of 318.71 Lane

Kilometers on

National Highway-33

between

Hazaribagh and Ranchi in

the State of

Jharkhand (the “HREL

Project”).

RPR I

Project

RPR II

Project

RRR Project CKC Project AK Project A two lane highway with

paved

shoulders with an aggregate

length of

539.74 Lane Kilometers of

the Sikar-

Bikaner section of NH-

11 via Sikar

bypass and Bikaner

bypass ending

on NH-89 in the State of

Rajasthan (the

“SBHL

Project”)

A four lane highway with

service roads

on both sides, aggregating to

approximately

472.01 Lane Kilometers on

National

Highway-4 between

Belgaum in

Karnataka up to the

Maharashtra

border (the “NKEL

Project”).

A two lane

and four lane dual

carriageway

with an aggregate

length of

103.74 Lane Kilometers

along the

suburbs of Ranchi and

Patratu (the

“RPR I

Project”);

A four lane

dual carriagewa

y with an

aggregate length of

108.47

Lane Kilometers,

beginning

at Patratu Dam and

ending at

Ramgargh Junction

(the “RPR

II

Project”);

A six lane

dual carriageway

with an

aggregate length of

217.15 Lane

Kilometers along Sections

III, IV, V and

VI of Ranchi Ring Road

along the

suburbs of Ranchi and

provide

bypass facilities to

national

highways, state

highways and

other roads running

through the

city of Ranchi (the “RRR

Project”);

A two lane

road with an aggregate

length of

137.40 Lane Kilometers

connecting

Chaibasa to Chowka via

Kandra which

connects the two national

highways NH

75E and EH33 (the “CKC

Project”)

A four lane dual

carriageway with an aggregate

length of 97.00

Lane Kilometers on the Adityapur-

Kandra Road (the

“AK Project”)

Authority NHAI Government of Jharkhand PWDGR NHAI

Concession

Type

Annuity Annuity Toll Annuity

Concession

Period1

18 years 17 years and 6

months

Approximately

19 years

17 years and 6

months

Approximatel

y 18 years

17 years and 9

months

25 years@ 17 years and 6

months

Commercia

l operation

date

September 15, 2012

October 12, 2012

April 30, 2014 September 21, 2012

November 30, 2014*

January 31, 2013

October 10, 2015#

July 19, 2004

Residual

life2

Approximatel

y 11 years and 10 months

Approximatel

y 11 years

Approximately

12 years and 7 months

Approximatel


Approximatel


Approximatel


Approximatel


Approximatel


1. Including the construction period

2. As of September 30, 2016 * Received a provisional completion certificate for completing 61.10 Kms out of the total 68.70 Kms (approximately 88.9%) of the

Project # Received a provisional completion certificate for completing 234.66 Kms out of the total 237.60 Kms (approximately 98.8%) of the

Project @ The SBHL Concession Agreement provides that, if the actual traffic volume falls short of, or exceeds, the target traffic volume on

specified dates mentioned in the SBHL Concession Agreement, the concession period may be deemed to be extended or reduced, as the case may be, in accordance with the formula specified in the SBHL Concession Agreement. The SBHL Traffic Report estimates

that the traffic volume on the Sikar Bikaner Toll Road may fall short of the targeted traffic volume set out in the SBHL Concession

Agreement on the specified dates by approximately 947 PCUs or by 7.7%. Accordingly, SBHL currently estimates that the concession period would be extended by approximately 2.75 years. Such extension, however, remains subject to actual traffic volume

tests to be undertaken on the specified dates in accordance with the SBHL Concession Agreement

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Hazaribagh Ranchi Expressway Limited

The HREL Project is an annuity-based project for the development and subsequent maintenance of a four lane

highway with an aggregate length of 318.71 Lane Kilometers on National Highway-33 (“NH-33”) between

Hazaribagh and Ranchi in the State of Jharkhand. The concession for this project was awarded by the NHAI to

HREL on a BOT basis pursuant to a concession agreement entered into between the NHAI and HREL dated October

8, 2009, as amended by an amendment agreement dated August 19, 2011 (the “HREL Concession Agreement”).

The term of the HREL Concession Agreement is a period of 18 years from August 1, 2010, the appointed date as

defined under the HREL Concession Agreement, which includes 910 days allocated for constructing the HREL

Project.

The NHAI and HREL entered into a supplementary agreement to the HREL Concession Agreement dated April 11,

2013 (the “HREL Supplementary Agreement”). Under the terms of the HREL Supplementary Agreement, HREL

is responsible for completing the remainder of the outstanding work required to be completed under the HREL

Concession Agreement, including the construction of Ramgarh bypass with an aggregate length of 15.72 Lane

Kilometers, in lieu of the existing road passing through Ramgarh city, as provided under the HREL Concession

Agreement.

The commercial operation date for the HREL Project was September 15, 2012 and the completion certificate was

issued on April 1, 2015.

Under the HREL Concession Agreement, HREL is entitled to annuity payments of Rs. 1,281.60 million.

HREL entered into a design, programme management services and operations and maintenance contract dated

October 15, 2009 with ITNL (the “HREL O&M Agreement”) to discharge its O&M obligations under the HREL

Concession Agreement. Under the terms of the HREL O&M Agreement, ITNL is required to carry out periodic

preventative maintenance and routine maintenance (e.g. minor repairs to potholes, drains, road signs etc.) of the

HREL Project. HREL proposes to enter into an amendment agreement to the HREL O&M Agreement with ITNL to

meet its obligations as regards the operation, maintenance and safety of the HREL Project. Under the terms of the

amendment agreement to the HREL O&M Agreement, ITNL will also carry out major maintenance of the HREL

Project. Major maintenance work may include resurfacing of pavements and repairing structures and equipment.

Further, ITNL will indemnify HREL against any loss of annuity and any major maintenance cost and material

maintenance payable, arising out of, or as a result of, any breach of obligations or deficiency of services provided by

ITNL, to the extent of the fees received for the particular financial year by ITNL for its services.

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See “Key Terms of the Project Agreements – HREL Project” for other key terms of the HREL Concession

Agreement.

Jharkhand Road Projects Implementation Company Limited

The Government of Jharkhand entered into a programme development agreement dated February 6, 2008 (the

“PDA”) with IL&FS to improve the road infrastructure in the State of Jharkhand under the Jharkhand Accelerated

Road Development Programme (“JARDP”), covering approximately 1,500.00 Lane Kilometers of roads in the state.

Under the terms of the PDA, at least 1,000.00 Lane Kilometers of roads must be identified for upgrade, out of which

663.76 Lane Kilometers of roads have been awarded to JRPICL. Pursuant to the PDA, two companies were

incorporated for the purpose of implementing the JARDP. The Jharkhand Accelerated Road Development Company

Limited (“JARDCL”), a joint venture of the Government of Jharkhand and IL&FS, holding 26.0% and 74.0%,

respectively, of its equity share capital, was incorporated for executing the design, engineering, construction,

commissioning, operation and maintenance of selected roads. JRPICL was incorporated to undertake, the design,

engineering, financing, procurement, construction, operation and maintenance of the road projects and to fulfil its

other obligations pursuant to the PDA.

Five separate concession agreements were entered into between the Government of Jharkhand, JARDCL and

JRPICL in relation to the development of approximately 663.76 Lane Kilometers of state roads, including the

Ranchi-Patratu Dam Road, Patraru Dam-Ramgarh Road, Ranchi Ring Road (Sections III, IV, V and VI), Chaibasa-

Kandra-Chowka Road and Adityapur-Kandra Road, on a BOT annuity basis (the “JRPICL Concession

Agreements”).

The RPR I Project

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The RPR I Project is an annuity-based project for the development and subsequent maintenance of a two lane and

four lane dual carriageway with an aggregate length of 103.74 Lane Kilometers along the suburbs of Ranchi and

Patratu. Pursuant to the Ranchi-Patratu Dam Road concession agreement dated October 14, 2009 (the “RPR I

Concession Agreement”), the term of the RPR I Concession Agreement is a period of 17 years and six months from

April 13, 2010, the commencement date as defined under the RPR I Concession Agreement. The commercial

operation date for the RPR I Project was October 12, 2012.

Under the RPR I Concession Agreement, JRPICL is entitled to annuity payments of Rs. 501.30 million.

See “Key Terms of the Project Agreements – JRPICL Projects” for other key terms of the RPR I Concession

Agreement.

The RPR II Project

The RPR II Project is an annuity-based project for the development and subsequent maintenance of a four lane dual

carriageway with an aggregate length of 108.47 Lane Kilometers from Patratu Dam ending at Subhash Chowk in

Ramgargh. Pursuant to the Patratu Dam-Ramgarh Road concession agreement dated October 14, 2009 (the “RPR II

Concession Agreement”), the term of the RPR II Concession Agreement is a period of 19 years from April 13,

2010, the commencement date defined under the RPR II Concession Agreement. The commercial operation date for

the RPR II Project was April 30, 2014.

Under the RPR II Concession Agreement, JRPICL is entitled to annuity payments of Rs. 620.90 million.

See “Key Terms of the Project Agreements – JRPICL Projects” for other key terms of the RPR II Concession

Agreement.

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The RRR Project

The RRR Project is an annuity-based project for the development and subsequent maintenance of a six-lane dual

carriageway along Sections III, IV, V and VI of Ranchi Ring Road with an aggregate length of 217.15 Lane

Kilometers along the suburbs of Ranchi and provides bypass facilities to national highways, state highways and

other roads running through the city of Ranchi. Pursuant to the Ranchi Ring Road concession agreement dated

September 23, 2009 (the “RRR Concession Agreement”), the term of the RRR Concession Agreement is a period

of 17 years and six months from March 22, 2010, the commencement date defined under the RRR Concession

Agreement. The commercial operation date for the RRR Project was September 21, 2012.

Under the RRR Concession Agreement, JRPICL is entitled to annuity payments of Rs. 1,178.20 million.

See “Key Terms of the Project Agreements – JRPICL Projects” for other key terms of the RRR Concession

Agreement.

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The CKC Project

The CKC Project is an annuity-based project for the development and subsequent maintenance of a two lane road

with an aggregate length of 137.40 Lane Kilometers connecting Chaibasa to Chowka via Kandra which connects the

two National Highways NH 75E and NH33. Pursuant to the Chaibasa-Kandra-Chowka Road concession agreement

dated May 28, 2011 (the “CKC Concession Agreement”), the term of the CKC Concession Agreement is a period

of 18 years from November 27, 2011, the commencement date as defined under the CKC Concession Agreement.

The CKC Project received a provisional completion certificate for completing 61.10 Kms out of the total 68.70 Kms

(approximately 88.9%) of the total project on November 30, 2014. The remainder of the CKC Project is expected to

be completed by December 2016.

Under the CKC Concession Agreement, JRPICL is entitled to annuity payments of Rs. 822.70 million. However,

since the issuance of the final completion certificate is subject to completion of certain specified activities, JRPICL

has been receiving annuity payments in proportion to the percentage of the project completed from the date of

receiving the provisional completion certificate.

See “Key Terms of the Project Agreements – JRPICL Projects” for other key terms of the CKC Concession

Agreement.

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The AK Project

The AK Project is an annuity-based project for the development and subsequent maintenance of a four lane dual

carriageway with service roads on either side, having an aggregate length of approximately 97.00 Lane Kilometers

from Adityapur, near Kharkai bridge on Jashedpur-Chaibasa road to Kandra junction of Adityapur-Kandra-Chaibasa

and Kandra-Chowka road. Pursuant to the Adityapur-Kandra Road concession agreement dated August 6, 2011 (the

“AK Concession Agreement”), the term of the AK Concession Agreement is a period of 17 years and nine months

from February 2, 2012, the commencement date defined under the AK Concession Agreement. The commercial

operation date for the AK Project was January 31, 2013.

Under the AK Concession Agreement, JRPICL is entitled to annuity payments of Rs. 458.20 million.

See “Key Terms of the Project Agreements – JRPICL Projects” for other key terms of the AK Concession

Agreement.

JRPICL has entered into five separate programme management services, implementation services, construction

services and operations and maintenance contracts with ITNL (the “JRPICL O&M Agreements”) in order to

discharge its O&M obligations under the JRPICL Concession Agreements. The JRPICL O&M Agreements for the

RPR I Project, the RPR II Project and the RRR Project are dated October 18, 2009 and those for the AK Project and

the CKC Project are dated November 1, 2011. Under the terms of the JRPICL O&M Agreements, ITNL is required

to carry out periodic preventative maintenance and routine maintenance (e.g. minor repairs to potholes, drains, road

signs etc.) of the JRPICL Projects. JRPICL proposes to enter into an amendment agreement to the JRPICL O&M

Agreements with ITNL to meet its obligations as regards the operation, maintenance and safety of the JRPICL

Projects. Under the terms of the amendment agreement to the JRPICL O&M Agreements, ITNL will also carry out

40

major routine maintenance of the JRPICL Projects. Major maintenance work may include resurfacing of pavements

and repairing structures and equipment. Further, ITNL will indemnify JRPICL against any loss of annuity and any

major maintenance cost and material maintenance payable, arising out of, or as a result of, any breach of obligations

or deficiency of services provided by ITNL, to the extent of the fees received for the particular financial year by

ITNL for its services. Additionally, ITNL will provide liquidity to JRPICL to fund any shortfall in debt repayment

as a result of any non-payment of annuities due to the non-availability of assured lane in accordance with any of the

JRPICL Concession Agreements, or deficiency in the maintenance of roads by ITNL as the operator.

Sikar Bikaner Highway Limited

The SBHL Project is a toll-based project for the development and subsequent operation and maintenance of the

Sikar Bikaner Toll Road. The entire equity share capital of SBHL is owned by ITNL. The concession for this project

was awarded by the PWDGR to SBHL on a design, build, finance, operate and transfer (“DBFOT”) basis pursuant

to a concession agreement entered into between the PWDGR and SBHL dated June 29, 2012 (the “SBHL

Concession Agreement”). The concession is for a period of 25 years from February 18, 2013. The SBHL Project

became commercially operational on October 10, 2015. The SBHL Project received a provisional completion

certificate for completing 234.66 Kms out of the total 237.60 Kms (approximately 98.8%) of the total project on

August 16, 2016. The remainder of the SBHL Project is expected to be completed by January 2017. As

consideration, SBHL has the sole and exclusive right to demand, collect and appropriate tolls payable by vehicles

using the SBHL Project in accordance with the SBHL Concession Agreement and the applicable rules and as

determined by the Government of India.

The SBHL Traffic Report was commissioned by ITNL to estimate the traffic growth rates, tollable traffic and

related revenues for the concession period of the SBHL Project which was conducted by Feedback Infra Private

Limited to determine the traffic intensity and travel pattern of vehicles on the Sikar Bikaner Toll Road. According to

the SBHL Traffic Report, based on the data collected, it is estimated that the traffic growth rates of cars, buses, light

41

motor vehicles and multi-axle vehicles will be between 4.0% and 12.3% from 2017 to 2021 and between 3.5% and

8.7% from 2022 to 2026. According to the SBHL Traffic Report, the annual toll revenue is estimated to increase

year-on-year from Rs. 408.00 million in the period from April 2016 to March 2017 to Rs. 7,838.00 million in the

period from April 2044 to March 2045.

The SBHL Concession Agreement provides that, if the actual traffic volume falls short of, or exceeds, the target

traffic volume on specified dates mentioned in the SBHL Concession Agreement, the concession period may be

deemed to be extended or reduced, as the case may be, in accordance with the formula specified in the SBHL

Concession Agreement. The SBHL Traffic Report estimates that the traffic volume on the Sikar Bikaner Toll Road

may fall short of the targeted traffic volume set out in the SBHL Concession Agreement on the specified dates by

approximately 947 PCUs or by 7.7%. Accordingly, SBHL currently estimates that the concession period would be

extended by approximately 2.75 years. Such extension, however, remains subject to actual traffic volume tests to be

undertaken on the specified dates in accordance with the SBHL Concession Agreement.

SBHL has entered into an operations and maintenance contract with ITNL dated October 12, 2015 (the “SBHL

O&M Agreement”) in order to discharge its O&M obligations under the SBHL Concession Agreement. Under the

terms of the SBHL O&M Agreement, ITNL is required to carry out periodic preventative maintenance and routine

maintenance (e.g. minor repairs to potholes, drains, and road signs) of the SBHL Project. SBHL proposes to enter

into an amendment agreement to the SBHL O&M Agreement with ITNL to meet its obligations as regards the

operation, maintenance and safety of the SBHL Project. Under the terms of the amendment agreement to the SBHL

O&M Agreement, ITNL will also carry out major maintenance of the SBHL Project. Major maintenance work may

include resurfacing of pavements and repairing structures and equipment. Further, ITNL will indemnify SBHL

against any reduction in toll collection by paying the difference between the average daily fee and the actual toll

collected for the relevant period, and any major maintenance cost and material maintenance payable, arising out of,

or as a result of, any breach of obligations or deficiency of services provided by ITNL, to the extent of the fees

received for the particular financial year by ITNL for its services.

On December 1, 2015, ITNL entered into a letter of agreement with Elsamex Maintenance Services Limited (the

“SBHL O&M LOA”) to subcontract the O&M work under the SBHL O&M Agreement for a period of three years,

commencing on November 1, 2015.

See “Key Terms of the Project Agreements – SBHL Project” for other key terms of the SBHL Concession

Agreement.

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North Karnataka Expressway Limited

The NKEL Project is an annuity-based project for the development, and subsequent operation and maintenance, of a

four lane highway with service roads on both sides, with an aggregate length of 472.01 Lane Kilometers on National

Highway 4 between Belgaum in Karnataka up to the Maharashtra border in Karnataka. The concession for the

NKEL Project was awarded by the NHAI on a BOT basis pursuant to a concession agreement entered into between

the NHAI dated November 20, 2001 (the “NKEL Concession Agreement”). The term of the NKEL Concession

Agreement is a period of 17 years and six months from June 20, 2002. The NKEL Project became commercially

operational on July 19, 2004.

Under the NKEL Concession Agreement, NKEL is entitled to annuity payments of Rs. 1,010.30 million.

NKEL has entered into a supervision and O&M contract with ITNL dated January 21, 2002 (the “NKEL O&M

Agreement”) and a construction and periodic maintenance contract with Punj Lloyd Limited on January 21, 2002

(the “NKEL Construction and Periodic Maintenance Contract”). Under the terms of the NKEL O&M

Agreement, ITNL is required to supervise the construction of the NKEL Project and maintain, operate, inspect,

manage, repair and test the NKEL Project. ITNL’s responsibilities include carrying out routine maintenance and

ensuring that the NKEL Project is available and complies with the O&M requirements under the NKEL Concession

Agreement during the concession period. Under the terms of the NKEL Construction and Periodic Maintenance

Contract, Punj Lloyd Limited is required to design and construct, operate and maintain the NKEL Project during the

implementation period and carry out periodic maintenance of the NKEL Project in the fifth, 10th and 15th year from

the commercial operating date.

NKEL proposes to enter into an amendment agreement to the NKEL O&M Agreement with ITNL to meet its

obligations as regards the operation, maintenance and safety of the NKEL Project. Under the terms of the

amendment agreement to the NKEL O&M Agreements, in addition to carrying out routine maintenance of the

NKEL Project, ITNL will also implement a corridor control plan to provide surveillance of the project facilities (as

43

defined in the NKEL O&M Agreement) and provide a monthly O&M report to NKEL. Further, ITNL will

indemnify NKEL against all direct claims, liabilities, costs, losses and expenses (including legal fees) incurred by

NKEL or its authorized personnel arising out of or as a result of, ITNL’s breach of any of its obligations or

deficiency in its services, to the extent of the fees received for the particular financial year by ITNL for its services.

See “Key Terms of the Project Agreements – NKEL Project” for other key terms of the NKEL Concession

Agreement.

ENVIRONMENT, HEALTH AND SAFETY

The Project SPVs are required to meet certain health, safety and environmental specifications and standards in the

operation and maintenance of the Projects as set out in the concession agreements, and are subject to a number of

laws and regulations relating to health, safety and environmental protection. The Project SPVs are also required to

adhere to various labor and workplace related laws and regulations in India. The Project SPVs have in place policies

and procedures to ensure that the operation and maintenance of the Projects conform to existing health, safety and

environmental regulatory standards and that adequate workmen’s compensation, group medical insurance and

personal accident insurance policies are maintained.

INSURANCE

The operations of the Project SPVs are subject to hazards inherent in providing construction and operation and

maintenance services, such as risk of equipment failure, work accidents, fire, earthquake, flood and other force

majeure events. This includes hazards that may cause injury and loss of life, damage and destruction of property,

equipment and environmental damage. The Project SPVs are required to maintain insurance for the construction and

operation of the Projects in accordance with the concession agreements. The principal types of insurance coverage

maintained by the Project SPVs include all risk insurance policies, special contingency insurance and burglary

insurance. The Sponsor, acting on behalf of the IL&FS Transportation Trust, maintains general medi-claim and

personal accident policies for the service team hired under the Services Agreement. The insurance policies may not

be sufficient to cover economic losses incurred.

INTELLECTUAL PROPERTY

The IL&FS Transportation Trust (acting through the Trustee) has entered into a name license agreement dated

October 14, 2016 with IL&FS for the license to use, for a period of three years, the trademarks for the “IL&FS”

name as well as its logo, which are registered under certain classes under the Indian Trade Marks Act, 1999.

COMPETITION

Competition of the IL&FS Transportation Trust

The IL&FS Transportation Trust faces competition from other road operators, financial investors, private equity

funds and potentially from other InvITs, in acquiring lucrative concessions for existing and future projects. In

respect of new and eligible acquisition opportunities, the IL&FS Transportation Trust is largely reliant on the

Sponsor and its subsidiaries, which face competition from both domestic and international entities in the roads and

highways infrastructure sector, as most of the contracts awarded by the Government and state governments are

awarded on a competitive bidding basis and subject to satisfaction of other prescribed pre-qualification criteria.

While service quality, technological capacity and performance, health and safety records and personnel, as well as

reputation and experience, are important considerations in client decisions, price is a major factor in most tender

awards. The ability of the Sponsor to bid for and win major infrastructure development projects is also dependent on

experience in executing large projects, strong engineering capabilities in executing technically complex projects, and

sufficient financial resources and/or ability to access funds.

Competition of Toll Roads

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As all toll revenues depend on toll receipts and are affected by changes in traffic volumes, the amount of revenue

generated by the SBHL Project and future toll projects will depend on a number of factors which can influence the

level of traffic volume on those particular toll roads, including competition from other roads that operate in the same

area, as well as from other modes of transportation (e.g. railways and airplanes).

Competition with ITNL

The IL&FS Transportation Trust may face competition from the Sponsor in acquiring new projects. However, the

Sponsor focuses primarily on the development of national and state highways and roads, and has a history of selling

certain of its operational road assets to re-vitalize its capital once the relevant project stabilizes. Further, under the

proposed ROFO Deed, the IL&FS Transportation Trust will have a right of first offer to acquire certain of the

Sponsor’s eligible existing and future assets which the Sponsor elects to dispose of.

SERVICES AGREEMENT

A services agreement will be entered into among each Project SPV, ITNL and the Investment Manager. Under each

services agreement, ITNL will develop, train and maintain a service team for the purpose of providing the services

covered under the services agreement and it will be responsible for the performance of the service team. Currently,

no employee is hired directly by the Project SPVs. The Project SPVs currently also use contract labor (through the

EPC contractors and the O&M operations) and are therefore also partially dependent on the availability of a

sufficient pool of such labor for the operation of the Projects. The number of contract laborers employed varies from

time to time based on the nature and extent of work being undertaken.

Significant emphasis is placed on the recruitment and retention of experienced and skilled professionals as the

performance of the IL&FS Transportation Trust depends, in part, upon the continued service and performance of the

management personnel of the Investment Manager and Project Manager.

PROPERTIES

Most of the assets that the Project SPVs use in the concessions do not belong to the Project SPVs. Under the terms

of the concession agreements, title to the roads and related infrastructure such as toll plazas and monitoring posts

remains with the concessioning authority for the duration of the concession period. During the concession period,

the Project SPVs are licensed to use the roads and the related infrastructure which constitute the concession assets

and the Project SPVs are entitled to an income from the collection of tolls or annuities, as applicable. Upon the

expiration of the concession period, the Project SPVs are required to transfer these concession assets to the relevant

concessioning authority.

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KEY TERMS OF THE PROJECT AGREEMENTS

HREL Project

HREL Concession Agreement

Annuity: HREL is entitled to an annuity payment of Rs. 1,281.60 million from the commercial operational date of

the HREL Project until the end of the concession period. The NHAI may reduce the annuity in the event that HREL

fails to maintain the HREL Project in accordance with the terms of the HREL Concession Agreement and in the

event that HREL fails to provide the assured lane availability of the HREL Project as per the terms of the HREL

Concession Agreement. In the event of a failure to maintain the HREL Project, HREL is liable for damages that will

be computed and certified by the independent engineer appointed by the NHAI (the “HREL Independent

Engineer”). In the event of a non-provision of assured lane availability of the HREL Project, the annuity will be

reduced by 1.0% for every 1.0% difference between the actual lane availability and the assured lane availability

under the HREL Concession Agreement, up to an aggregate reduction of 5.0% in the actual lane availability. For

every 1.0% difference between the actual lane availability and the assured lane availability beyond 5.0%, the annuity

will be reduced by 2.0%.

Operation and Maintenance: Under the terms of the HREL Concession Agreement, after commissioning the HREL

Project, HREL is required to, among other things, operate and maintain the project, either by itself or through a

contractor, including modifying, repairing or otherwise making improvements to the project in accordance with the

HREL Concession Agreement. HREL’s operation and maintenance obligations include:

permitting the safe, smooth and uninterrupted flow of traffic during normal operating conditions;

minimizing disruption to traffic in the event of accidents or other incidents affecting the safety and use of

the HREL Project;

undertaking routine maintenance, including repairs of potholes, cracks, joints, drains, embankments,

structures, pavement markings, lighting, road signs and other traffic control devices;

undertaking major maintenance, including resurfacing of pavements, repairs to structures and

refurbishment of tolling systems and other equipment; and

operating and maintaining all communication, control and administrative systems necessary for the HREL

Project.

Maintenance Manual: HREL is required to, in consultation with the HREL Independent Engineer, prepare a repair

and maintenance manual (the “HREL Maintenance Manual”) for the regular and preventative maintenance of the

HREL Project in accordance with the maintenance requirements and safety requirements set out in the HREL

Concession Agreement and good industry practice. Under the HREL Concession Agreement, HREL is required to

revise and update the NH-33 Maintenance Manual once every three years.

Maintenance Programme: HREL is required to provide the NHAI and the HREL Independent Engineer an annual

programme for preventive, urgent and other scheduled maintenance over the HREL Project (the “HREL

Maintenance Programme”) to ensure compliance with the HREL Maintenance Manual and the maintenance

requirements and safety requirements set out in the HREL Concession Agreement. The HREL Maintenance

Programme is required to be provided to the NHAI and the HREL Independent Engineer within 45 days of the start

of each accounting year beginning April 1 during the concession period.

Breach of Maintenance Obligations: In the event that HREL fails to repair or rectify any defect or deficiency with

respect to the maintenance requirements set out in the HREL Concession Agreement within the time specified

therein, the NHAI will be entitled to damages calculated in accordance with the HREL Concession Agreement.

Remedial Measures: In the event that HREL fails to maintain and/or repair the HREL Project in accordance with the

maintenance requirements under the HREL Concession Agreement, the HREL Maintenance Manual or the HREL

Maintenance Programme, and fails to commence remedial works within 15 days of receiving an inspection report

from the HREL Independent Engineer or a notice from the NHAI or HREL Independent Engineer, the NHAI will be

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entitled to undertake such remedial works and may recover such costs for the remedial works from HREL, including

damages calculated as 20.0% of such costs.

Change in scope of work: The NHAI may require HREL to perform additional work and services not originally

included in the scope of work of HREL, in the manner set out in the HREL Concession Agreement, if in the opinion

of the NHAI, such change in scope of work is necessary for providing safer and improved services to the users of

NH-33.

Levy and Collection of Fees: The NHAI has the right to levy tolls or fees on vehicles which travel on the HREL

Project and demand, collect, retain and appropriate such fees in accordance with applicable law. HREL is not

permitted any advertisements, including on hoardings, or other commercial activities on the NH-33 or to charge or

collect any fees in respect thereof.

Limitations on Shareholding Changes: Under the terms of the HREL Concession Agreement, a change in ownership

of HREL is subject to the prior approval of the NHAI. A change in ownership of HREL will occur if the consortium

members, ITNL and Punj Lloyd Limited, cause their aggregate shareholding in HREL to fall below 51.0% during

the construction period, 33.0% during the three years following the commercial operation date and 26.0% or a

threshold as may be permitted by the NHAI during the remaining concession period. Further, an acquisition of

15.0% or more of the equity shares of HREL by a single acquirer or persons acting in concert, as defined in the

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 and

acquisition of any “control”, as defined under the Takeover Code, directly or indirectly, of the board of directors of

HREL, is subject to the prior approval of the NHAI from a national security and public interest perspective and the

decision of the NHAI shall be final and binding on HREL.

Pursuant to the NHAI circular number NHAI/11033/CGM(FA)/4/2015 dated September 6, 2015, in the event of a

100.0% equity divestment by ITNL, the sale proceeds from such divestments will be utilized towards (i) the

incomplete projects of the NHAI; (ii) any other highway projects; (iii) any power sector projects; or (iv) the payment

of debt to financial institutions in any other infrastructure projects. Accordingly, HREL will be required to provide

details of the utilization of proceeds of such divestment by ITNL, while seeking consent from the NHAI for such

divestment.

Insurance: HREL is required to maintain, at its own cost (or through the O&M provider), during the term of the

HREL Concession Agreement, insurance of such types and such amounts as are prudent in accordance with good

industry practice. In the event that HREL fails to maintain such insurance, the NHAI will be obliged to do so and

will be entitled to recover the cost of such insurance from HREL.

Escrow Account: HREL is required to open and establish an escrow account with a bank which is governed by an

escrow agreement entered into between HREL, the NHAI, the escrow bank and the bank acting for and on behalf of

the senior lenders to the HREL Project. Under the terms of the HREL Concession Agreement all funds from the

HREL Project lenders, all annuities and any other revenue from the HREL Project, including insurance claims and

all payments by the NHAI, after deducting the concession fee of Rs. 1.00 per year (the “Concession Fee”) will be

deposited into the escrow account. All permitted withdrawals by HREL will be according to the terms of the HREL

Concession Agreement. HREL must instruct the escrow bank to make payments in the order below during the

concession period and such order cannot be modified without the prior written consent of the NHAI:

all taxes due and payable by HREL;

all payments in relation to construction of the HREL Project, subject to the terms of the relevant financing

agreements;

operation and maintenance expenses subject to the terms of the relevant financing agreements;

operation and maintenance expenses and other costs and expenses incurred by the NHAI in accordance

with the HREL Concession Agreement;

Concession Fee due and payable by the NHAI;

monthly proportionate provision of all amounts due and payable to the senior lenders in accordance with

the relevant financing agreements in an accounting year;

all payments and damages payable to the NHAI by HREL;

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all amounts due and payable in respect of the subordinated debt incurred by HREL for the HREL Project;

any reserve requirements set out in the relevant financing agreements; and

the balance, if any, in accordance with the instructions of HREL.

Indemnities: HREL is required, under the terms of the HREL Concession Agreement, to indemnify the NHAI, its

officers, servants, agents, government instrumentalities and government owned and controlled enterprises against all

suits, proceedings, actions, demands and third party claims for any loss, damage, cost and expense of whatever kind

and nature (collectively, “Loss”) arising out of HREL’s breach of the HREL Concession Agreement or any related

agreement, on account of any defect or deficiency in the provision of services under the HREL Concession

Agreement and other defaults by HREL including failure to pay taxes. Further, the NHAI is required to indemnify

HREL for Loss arising out of defect in title and rights of the NHAI in the land comprising the project site and/or a

breach by the NHAI of any of its obligations under the HREL Concession Agreement or any related agreement

which materially and adversely affects HREL’s ability to perform its obligations under the HREL Concession

Agreement.

Step-in Rights: HREL is required to ensure and procure that each project agreement in relation to the HREL Project

contains provisions that entitle the NHAI to, at its discretion, step into such agreement in place and substitution of

HREL in the event of termination or suspension of the HREL Concession Agreement.

Force Majeure: Upon an occurrence of a force majeure event (as defined in the HREL Concession Agreement), the

force majeure costs (as defined in the HREL Concession Agreement) will be allocated and paid as follows: if the

force majeure event is (a) a non-political event, the HREL and the NHAI will bear their respective force majeure

costs; (b) an indirect political event, the force majeure costs will be borne by HREL to the extent of insurance claims

and, to the extent such costs exceed insurance claims, one half of such excess amount will be reimbursed by the

NHAI; and (c) a political event, the force majeure costs attributable to the political event will be reimbursed by the

NHAI in accordance with the HREL Concession Agreement.

Payments to be made in case of termination on account of force majeure event (as defined in the HREL Concession

Agreement): In the event the HREL Concession Agreement is terminated on account of a force majeure event, the

NHAI is required to make termination payments to HREL. In the event of termination due to (a) a non-political

event, the NHAI will be required make a termination payment of an amount equal to 90.0% of the debt due less any

insurance cover, to HREL; (b) an indirect political event, the NHAI will be required make a termination payment of

an amount equal to (i) the debt due less any insurance cover, provided that if any insurance claims forming part of

such insurance cover are not admitted and paid, then 80.0% of such unpaid claims will be included in the calculation

of debt due, and (ii) 110.0% of the adjusted equity (as specified in the HREL Concession Agreement), to HREL; and

(c) a political event, the NHAI will be required make a termination payment of an amount that would be payable

upon termination if it had been in default under the HREL Concession Agreement to HREL.

Compensation for breach of the HREL Concession Agreement: In the event that HREL or the NHAI commits a

material breach of the HREL Concession Agreement, the defaulting party is required to compensate the other party

for all direct costs suffered by the other party as a consequence of such material breach, as specified in the HREL

Concession Agreement.

Termination: The HREL Concession Agreement may be terminated by the NHAI on the occurrence of HREL’s

default and provided that the default has not been cured under the terms of the HREL Concession Agreement; by

HREL on the NHAI’s default; or by either HREL or the NHAI in the event of a force majeure event continuing for a

period of 180 days or more within a continuous period of 365 days. HREL will be deemed to be in default of the

HREL Concession Agreement if, among other things:

HREL abandons or manifests an intention to abandon the operation of the HREL Project without the prior

written consent of the NHAI;

HREL is in breach of the HREL maintenance requirements;

HREL fails to make any payment to the NHAI within the period specified in the HREL Concession

Agreement;

an escrow default occurs and HREL fails to cure the default within a cure period of 15 days;

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on the occurrence of a financial default, and the Bank of India, the representative of the lenders to HREL,

has by notice required the NHAI to suspend all rights of HREL under the HREL Concession Agreement

and substitute HREL in accordance with the substitution agreement entered into between HREL, the NHAI

and the Bank of India, and HREL fails to cure the default within the cure period specified in such

substitution agreement;

a breach of any of the project agreements by HREL that has caused a material adverse effect on the ability

of either HREL or the NHAI to perform its obligations under the HREL Concession Agreement and causes

a material financial burden or loss to either HREL or the NHAI;

HREL creates any encumbrance in breach of the HREL Concession Agreement;

HREL repudiates the HREL Concession Agreement or otherwise takes any action or evidences or conveys

an intention not to be bound by the HREL Concession Agreement;

a change in ownership has occurred in breach of the HREL Concession Agreement;

there is a transfer of either the rights and/or obligations of HREL under any of the project agreements or of

all or part of the assets or undertaking of HREL pursuant to law, and such transfer causes a material

adverse effect; or

HREL commits a default in complying with any other provision of the HREL Concession Agreement if

such a default causes a material adverse effect on the NHAI.

The HREL Concession Agreement may be terminated by HREL by serving a termination notice to the NHAI on the

occurrence of a default by the NHAI and the failure by the NHAI to cure such default within the cure period

prescribed in the HREL Concession Agreement. However, such default should not have occurred on account of (a)

the breach of the HREL Concession Agreement by HREL; or (b) the occurrence of a force majeure event (as defined

in the HREL Concession Agreement). A default by the NHAI includes the occurrence of one or more of the

following events:

the NHAI commits a material default in complying with any of the provisions of the HREL Concession

Agreement and such default has a material adverse effect on HREL;

the NHAI has failed to make any payments to HREL within the period specified in the HREL Concession

Agreement;

the NHAI repudiates the HREL Concession Agreement or otherwise takes any action that amounts to or

manifests an irrevocable intention not to be bound by the HREL Concession Agreement; or

the Government of Jharkhand commits a default under the provisions of the state support agreement and

such default is not cured within the period prescribed in the HREL Concession Agreement and the default

causes a material adverse effect on HREL.

Upon termination of the HREL Concession Agreement on account of the NHAI’s default (as specified in the HREL

Concession Agreement), the NHAI is required to pay HREL a termination payment which is an amount equal to the

debt due and 150.0% of the adjusted equity (as specified in the HREL Concession Agreement). Upon termination of

the HREL Concession Agreement on account of HREL’s default (as specified in the HREL Concession Agreement),

the NHAI is required to pay a termination payment which is an amount equal to 90.0% of the debt due less any

insurance cover, provided that if any insurance claims forming part of such insurance cover are not admitted and

paid, then 80.0% of such unpaid claim will be included in the calculation of debt due. In the event that the NHAI

fails to make the termination payment within the specified timelines, it is required to pay interest in accordance with

the HREL Concession Agreement.

Defects Liability after Termination: HREL will be liable for all defects and deficiencies of the HREL Project for a

period of 120 days after the termination of the HREL Concession Agreement. For this purpose, a sum equal to

10.0% of the annuity immediately preceding the date that the HREL Project is transferred to the NHAI will be

retained in an escrow account for 120 days after termination, although the HREL Independent Engineer may

recommend an amount larger than such sum to be retained in the Escrow Account for a period longer than such

period. HREL may, instead of retaining 10.0% of the annuity, provide to the NHAI a guarantee from a bank in an

amount equal to 10.0% of such annuity for the purposes of meeting its post termination defects liability obligations.

Renewal: The concession agreement does not contain a renewal provision.

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HREL Construction Contract

HREL entered into a development contract with ITNL on October 9, 2009 in respect of the construction works

contemplated under the HREL Concession Agreement. ITNL subsequently entered into a construction contract with

G.R. Infraprojects Limited (“GRIL”) dated November 30, 2009 to subcontract the construction work for the HREL

Project (the “HREL Construction Contract”). The construction work for a partial section of the NH-33 that is

approximately 6.4 km in length was assigned by GRIL to Vijeta Project & Infrastructure Limited and approved by

ITNL on November 15, 2010. The HREL Construction Contract expired upon the completion of construction for the

HREL Project in accordance with the HREL Construction Contract.

On April 12, 2013, the HREL Independent Engineer issued a provisional completion certificate to certify that the

construction of the HREL Project was completed (except for a few pending items) and that the HREL Project was fit

for entry into commercial operation on September 15, 2012.

The final completion certificate was issued by the HREL Independent Engineer on April 28, 2015 to certify that all

outstanding work in relation to NH-33 was completed.

HREL O&M Agreement

Under the terms of the HREL O&M Agreement, ITNL is responsible for providing detailed design drawings of the

HREL Project and providing programme management and operations and maintenance services over the HREL

Project during the pendency of the HREL Concession Agreement. Pursuant to the terms of the HREL O&M

Agreement, ITNL is responsible for the operation, maintenance and safety of the HREL Project. ITNL’s obligations

are in relation to the operation, maintenance and safety that comply with HREL’s obligations under the HREL


Under the terms of the proposed amendment agreement to the HREL O&M Agreement, ITNL will also carry out

major maintenance of the HREL Project. Further, ITNL will agree to indemnify HREL and the NHAI against all

claims, liabilities, costs, damages, losses and expenses (including legal fees) arising out of, or as a result of, ITNL’s

breach of any of its obligations or deficiency in its services, to the extent of the fees received for the particular

financial year by ITNL for its services. ITNL will also agree to pay HREL for any shortfall in annuities paid by the

NHAI, if the shortfall is not on account of any default by the NHAI. HREL will be required to pay ITNL the fees as

proposed to be set out under the terms of the amendment agreement to the HREL O&M Agreement.

JRPICL Projects

Common Terms of the JRPICL Concession Agreements

Performance Security: In the terms of the JRPICL Concession Agreements, JRPICL is required to provide a

performance security to the Government of Jharkhand, in the form of a bank guarantee amounting to 5.0% of the

total project cost under during the construction period (as defined in the JRPICL Concession Agreements), for the

performance of its obligations during the construction period which may be appropriated by the Government of

Jharkhand on the occurrence of default by JRPICL. The performance security is reduced to 3.0% of the total project

cost on the date JRPICL has access to funds provided by the senior lenders to each of the JRPICL Projects.

Annuity: JRPICL is entitled to an annuity payment for each of the JRPICL Projects once every six months from the

scheduled project completion date (as defined under the JRPICL Concession Agreements) until the end of the

respective concession period. The Government of Jharkhand may reduce the annuity in the event that JRPICL fails

to complete the JRPICL Projects in accordance with the terms of the JRPICL Concession Agreements and in the

event that JRPICL fails to keep the JRPICL Projects available as per the terms of the JRPICL Concession

Agreements. The JRPICL Projects will be deemed to be unavailable if the actual availability falls below the assured

availability of the JRPICL Projects. The JRPICL Projects will also be deemed to be unavailable if a road is closed

for traffic otherwise than in accordance with the JRPICL Concession Agreements or, irrespective of whether it is

closed for traffic or not, the independent consultant appointed by the Government of Jharkhand and JARDCL (the

“JRPICL Independent Consultant”) determines that the ride quality of the roads is below acceptable levels set out

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in the JRPICL Concession Agreements or that the roads are unsafe for operations. In such event, the annuity payable

will be adjusted in accordance with a prescribed formula.

Operation and Maintenance: Under the terms of the JRPICL Concession Agreements, after commissioning of the

RPR I Project, the RPR II Project, the RRR Project, the AK Project and the CKC Project, JRPICL is required to,

among other things, operate and maintain the JRPICL Projects, either by itself or through a contractor, including

modifying, repairing or otherwise making improvements to the project in accordance with the JRPICL Concession

Agreements. JRPICL’s operation and maintenance obligations include:

permitting the safe, smooth and uninterrupted flow of traffic;


the JRPICL Projects;

undertaking routine maintenance, including repairs of potholes, cracks, joints, drains, line marking,

lighting and signage;

undertaking major maintenance, including resurfacing of pavements, repairs to structures and hardware and

other equipment; and

carrying out periodic preventive maintenance of the JRPICL Projects.

Maintenance Manual: JRPICL is required to, in consultation with the JRPICL Independent Consultant, prepare a

repair and maintenance manual (the “JRPICL Maintenance Manual”) for the regular and periodic maintenance of

the relevant JRPICL Project in accordance with the specifications and standards, maintenance requirements and

safety requirements set out in the relevant JRPICL Concession Agreement and good industry practice.

Maintenance Programme: JRPICL is required to, in consultation with the JRPICL Independent Consultant, prepare

and provide the Government of Jharkhand a proposed programme for preventive and other scheduled maintenance

of the relevant JRPICL Project (the “JRPICL Maintenance Programme”) no later than 45 days prior to the start of

each accounting year beginning April 1, subject to the minimum maintenance requirements set forth in the JRPICL

Maintenance Manual and the relevant JRPICL Concession Agreement to ensure compliance with the specifications

and standards set out in the relevant JRPICL Concession Agreement.

Remedial Measures: In the event that JRPICL fails to maintain or repair the JRPICL Projects in accordance with the

specifications and standards set out in the relevant JRPICL Concession Agreement, the JRPICL Maintenance

Programme or the JRPICL Maintenance Manual and fails to commence remedial works within 30 days of receipt of

notice from the Government of Jharkhand or JARDCL or the JRPICL Independent Consultant or receipt of an

inspection report, the Government of Jharkhand or JARDCL will be entitled to undertake such remedial works and

recover the costs from JRPICL. In addition, the Government of Jharkhand or JARDCL will be entitled to damages

calculated as 25.0% of such costs. In the event the Government of Jharkhand or JARDCL do not exercise their

option to undertake such remedial works, the Government of Jharkhand or JARDCL will be entitled to damages

calculated in accordance with the relevant JRPICL Concession Agreement.

Change in scope of work: The Government of Jharkhand may require JRPICL to perform additional work and

services not originally included in the scope of work of JRPICL, in the manner set out in the respective JRPICL

Concession Agreements, provided that such changes do not change the expenditure beyond 10.0% of the total

project cost for each respective JRPICL Project and do not adversely affect the commercial operation date.

Pursuant to a letter dated May 12, 2016, the Government of Jharkhand has instructed JRPICL to perform additional

work amounting to Rs. 163,496,064 (such amount to be borne by the Eastern Central Railways) in relation to a

railway track which will be built from Hazaribagh to Ranchi.

Levy and Collection of Fees: The Government of Jharkhand has the right to levy fees on vehicles which travel on

the JRPICL Projects and demand, collect, retain and appropriate such fees in accordance with applicable laws. The

Government of Jharkhand may at its discretion levy and collect the fees by itself or through a contractor. JRPICL is

not permitted any advertisements, including hoardings, or other commercial activities on the roads of the JRPICL

Projects or to charge or collect any fees in respect thereof.

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Insurance: JRPICL is required to maintain, at its own cost (or through the O&M provider), during the terms of the

JRPICL Concession Agreements, insurance of such types and such amounts as are prudent in accordance with good

industry practice and such insurance as may be necessary for mitigating risks for the Government of Jharkhand or

JARDCL. In the event that JRPICL fails to maintain such insurance, the Government of Jharkhand or JARDCL will

be obliged to do so and will be entitled to recover the cost of such insurance from JRPICL.

Escrow Account: Under each of the JRPICL Concession Agreements, JRPICL is required to open and establish an

escrow account with a bank which is governed by an escrow agreement entered into between JRPICL, the

Government of Jharkhand, the escrow bank and the senior lenders to each of the JRPICL Projects (the “JRPICL

Escrow Agreements”). Under the terms of the JRPICL Concession Agreements and JRPICL Escrow Agreements,

all funds from the lenders of the JRPICL Projects, all annuities, bonuses, termination payments and any other

payment which becomes payable by the Government of Jharkhand will be deposited into the escrow account. All

permitted withdrawals by JRPICL will be according to the JRPICL Escrow Agreements. JRPICL must instruct the

escrow bank to make payments in the order below during the relevant concession period and such order cannot be

modified without the prior written consent of the Government of Jharkhand or JARDCL:

all taxes due and payable by JRPICL;

operation and maintenance expenses incurred by JRPICL or the operations and maintenance contractor,

subject to the terms of the relevant financing agreements but not exceeding one twelfth of the annual

liability;

all expenses incurred by the Government of Jharkhand/JARDCL in connection with completion of the list

of punch list items appended to the provisional completion certificate;

all or part of the expense for repair work or operation and maintenance expense incurred by the

Government of Jharkhand/JARDCL;

all Concession Fees due to the Government of Jharkhand/JARDCL under the JRPICL Concession

Agreements;

reimbursement of expenditure incurred by the Government of Jharkhand/JARDCL for payment of

insurance premium which are otherwise JRPICL’s responsibility in the event JRPICL fails to keep such

insurance coverage effective and in force;

monthly proportionate provision of the debt service payments due in an accounting year and payment of

debt service payments in the month due;

remuneration, cost and expenses of the JRPICL Independent Consultant in the event JRPICL fails to

reimburse the Government of Jharkhand/JARDCL for such remuneration, cost and expenses within 15 days

of receiving a statement of expenditure from the Government of Jharkhand/JARDCL;

all payments and damages payable to the Government of Jharkhand/JARDCL by JRPICL;

all amounts due and payable in respect of the subordinated debt of the relevant JRPICL Project; and

the balance, if any, in accordance with the instructions of JRPICL.

Indemnities: JRPICL is required, under the terms of the JRPICL Concession Agreements, to indemnify the

Government of Jharkhand and JARDCL, its officers, servants, agents and subsidiaries against any and all Loss

arising out of the design, engineering, construction, operation and maintenance of the JRPICL Projects or arising out

of JRPICL’s breach of the JRPICL Concession Agreements. Further, the Government of Jharkhand is required to

indemnify JRPICL against any and all suits, proceedings, actions, demands and third party claims for any Loss

arising out of (a) defects in title and rights of the Government of Jharkhand over the land comprising the project site

which adversely affects JRPICL’s ability to comply with its obligations under the JRPICL Concession Agreements;

or (b) breach of the terms of the JRPICL Concession Agreements by the Government of Jharkhand or its officials, as

specified under the JRPICL Concession Agreements.

Step-in Rights: JRPICL is required to ensure and procure that each project agreement in relation to the JRPICL

Projects contains provisions that entitle the Government of Jharkhand to, at its discretion, step into such agreement

in place and substitution of JRPICL in the event of termination of the relevant JRPICL Concession Agreement due

to a default or breach by JRPICL.

Force Majeure: Upon occurrence of a force majeure event (as defined in the JRPICL Concession Agreements) and

such force majeure event being (a) a non-political event, JRPICL and the Government of Jharkhand will bear their

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respective costs; (b) an indirect political event, the costs attributable to such force majeure event and directly related

to the Project will be borne by JRPICL to the extent of insurance claims and, to the extent such costs exceed

insurance claims, one half of the force majeure costs to the extent actually incurred will be reimbursed by the

Government of Jharkhand; and (c) a political event, the force majeure costs to the extent actually incurred and

certified by the statutory auditors of JRPICL will be reimbursed by the Government of Jharkhand in accordance with

the relevant JRPICL Concession Agreement.

In the event the JRPICL Concession Agreements are terminated on account of a force majeure event occurring after

the commercial operation date and which is (a) a non-political event, no termination payment will be paid to JRPICL

by the Government of Jharkhand; (b) an indirect political event, the Government of Jharkhand is required to pay to

JRPICL a termination payment equal to 75.0% of the discounted value of future net cash flows; or (c) a political

event, the Government of Jharkhand is be required to pay to JRPICL a termination payment of an amount equal to

the discounted value of future net cash flows.

With respect to termination on account of a force majeure event prior to the commercial operation date: (a) in the

event of termination due to a non-political event, no termination payment is payable to JRPICL by the Government

of Jharkhand; (b) in the event of termination due to an indirect political event, the Government of Jharkhand will be

required to pay to JRPICL termination payments equal to the book value as of the date of the termination notice; and

(c) in the event of termination due to a political event, the Government of Jharkhand will be required to pay to

JRPICL termination payments equal to the book value as of the date of the termination notice and accrued interest

thereon, as specified.

Compensation for breach of the JRPICL Concession Agreements: In the event the Government of Jharkhand or

JRPICL is in material default of the JRPICL Concession Agreements and such default is cured before termination of

the JRPICL Concession Agreements, the defaulting party is required to compensate the other party for all direct

additional costs suffered or incurred by the other party on account of such default, as specified in the JRPICL

Concession Agreements.

Termination: The JRPICL Concession Agreements may be terminated on the occurrence of JRPICL’s default and

provided that the default has not been cured under the terms of the JRPICL Concession Agreements; on the

Government of Jharkhand or JARDCL’s default; or in the event of a force majeure event continuing for a period of

180 days or more within a continuous period of 365 days. JRPICL will be deemed to be in default of the JRPICL

Concession Agreements if, among other things:

JRPICL is in material breach of the relevant JRPICL Concession Agreement;

JRPICL is in default of the relevant JRPICL Concession Agreement, except for those defaults for which a

cure period is provided in the relevant JRPICL Concession Agreement and JRPICL fails to remedy within

the period provided in a notice from the Government of Jharkhand;

JRPICL creates any encumbrance in breach of the relevant JRPICL Concession Agreement;

the shareholding of IL&FS falls below the minimum threshold prescribed under the relevant JRPICL

Concession Agreement and JRPICL does not cure such default within 90 days;

there is a transfer of either the rights and/or obligations of JRPICL under any of the project agreements or

of all or part of the assets or undertaking of JRPICL pursuant to law, except where the transfer in the

reasonable opinion of the Government of Jharkhand does not affect the ability of JRPICL to perform, and

JRPICL has the financial and technical capability to perform its material obligations under the project

agreements;

JRPICL is in material breach of any of the project agreements for the JRPICL Projects;

JRPICL is in default of any of the financing documents for the JRPICL Projects or any of the senior lenders

has recalled its loan under any of the financing documents for the JRPICL Projects;

JRPICL repudiates the relevant JRPICL Concession Agreement or otherwise evidences an intention not to

be bound by the JRPICL Concession Agreement; or

JRPICL has delayed any payment that has fallen due under the relevant JRPICL Concession Agreement

and such delay exceeds 90 days.

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The JRPICL Concession Agreements may be terminated by JRPICL serving a termination notice to the Government

of Jharkhand upon the occurrence of default by the Government of Jharkhand, such default not having occurred on

account of (a) JRPICL’s default; or (b) the occurrence of force majeure event. A default by the Government of

Jharkhand will include the occurrence of one or more of the following events:

the Government of Jharkhand is in breach of its obligations under the JRPICL Concession Agreement, such

breach has a material adverse effect on JRPICL and it has failed to cure such breach within the time period

prescribed in the JRPICL Concession Agreement;

the Government of Jharkhand repudiates the relevant JRPICL Concession Agreement or otherwise

evidences an intention not to be bound by the JRPICL Concession Agreement; or

the Government of Jharkhand has delayed any payment that has fallen due under the relevant JRPICL

Concession Agreement and such delay exceeds 90 days.

In the event any of the JRPICL Concession Agreements is terminated on account of JRPICL’s default, the

Government of Jharkhand is required to make a termination payment of an amount equal to 70.0% of the book value

of the relevant JRPICL Project on the date of the termination notice to JRPICL. If any of the JRPICL Concession

Agreements is terminated due to the Government of Jharkhand’s default after the commercial operation date, the

Government of Jharkhand is required to make a termination payment of an amount equal to the discounted value of

future net cash flows on the date of the termination notice to JRPICL. In the event the Government of Jharkhand

fails to make a termination payment within the prescribed timelines, it is required to pay interest for the period of

delay, as specified in the JRPICL Concession Agreements.

Defects Liability: Under the JRPICL Concession Agreements, JRPICL and the JRPICL Independent Consultant or

JARDCL are required to conduct a joint inspection of the JRPICL Projects on two separate occasions. The initial

inspection should be conducted no later than 30 months and no earlier than 36 months prior to the expiry of each of

the concession periods and the second inspection should be conducted no later than nine months and no earlier than

12 months prior to the expiry of each of the concession periods. JRPICL will be liable for all defects and

deficiencies of the JRPICL Projects which have been identified by JRPICL and the JRPICL Independent Consultant

or JARDCL in the course of the joint inspections and JRPICL will be required to carry out all renewal works at its

own cost. For this purpose, a sum equal to 15.0% of the annuity or a higher sum estimated by the JRPICL

Independent Consultant or JARDCL for renewal works will be retained in the escrow account from the date which is

two years prior to the expiry of the relevant concession period. JRPICL may, instead of retaining the required sum,

provide to the Government of Jharkhand a guarantee from a bank in an amount equal to the required sum for the

purposes of meeting its defects liability obligations.

Renewal: The JRPICL Concession Agreements do not contain renewal provisions.

JRPICL Construction Contracts

JRPICL entered into five separate construction contracts to subcontract the construction works for each of the

JRPICL Projects (the “JRPICL Construction Contracts”). In respect of the RPR I Project and the RPR II Project,

JRPICL entered into construction contracts with Montecarlo Construction Limited each dated October 28, 2009. In

respect of the RRR Project, JRPICL entered into a construction contract with Sadbhav Engineering Limited dated

October 16, 2009. In respect of the CKC Project and the AK Project, JRPICL entered into construction contracts

with GKC Projects Limited dated July 28, 2011 and September 3, 2011, respectively. The JRPICL Construction

Contracts, with the exception of the construction contract in respect of the CKC Project, expired upon completion of

construction for each of the JRPICL Projects in accordance with the relevant JRPICL Construction Contracts.

The JRPICL Independent Engineer has issued completion certificates between September 21, 2012 and November

30, 2014 to certify the JRPICL projects as fit for entry into commercial operation, with the exception of the CKC

Project which has received a provisional completion certificate dated November 30, 2014.

Under the terms of the JRPICL Construction Contracts, JRPICL was required to pay the construction contractor a

fixed lump sum amount.

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JRPICL O&M Agreements

Under the terms of the JRPICL O&M Agreements, ITNL is responsible for monitoring and supervising the quality

and progress of work as well as managing, on JRPICL’s behalf, all the day-to-day activities during the construction

phase of the JRPICL Projects in order to meet the requirements under the JRPICL Concessions Agreements. ITNL

is also responsible for providing operations and maintenance services over the JRPICL Projects during the JRPICL

Concession Agreements. Pursuant to the terms of the JRPICL O&M Agreements, ITNL operates and maintains the

JRPICL Projects and, where required, modify, repair or otherwise make improvements to the JRPICL Projects.

ITNL’s obligations are in relation to the operation, maintenance and safety that comply with JRPICL’s obligations

under the JRPICL Concession Agreements.

Under the terms of the proposed amendment agreement to the JRPICL O&M Agreement, ITNL will also carry out

major maintenance of the JRPICL Projects.

JRPICL will be required to pay ITNL the fees as proposed to be set out under the terms of the amendment

agreement to the JRPICL O&M Agreement. In addition, ITNL will agree to indemnify JRPICL against all claims,

liabilities, costs, damages, losses and expenses (including legal fees) arising out of or as a result of, ITNL’s breach

of any of its obligations or deficiency in its services, to the extent of the fees received for the particular financial

year by ITNL for its services. ITNL will also agree to pay JRPICL for any shortfall in annuities paid by the

Government of Jharkhand, if the shortfall is not on account of any default by the Government of Jharkhand, and

fund any shortfall in debt repayment as a result of any non-payment of annuities due to the non-availability of

assured lane in accordance with any of the JRPICL Concession Agreements, or deficiency in the maintenance of

roads by ITNL as the operator.

SBHL Project

SBHL Concession Agreement

Tolls: SBHL is, solely and exclusively, entitled to demand, collect and appropriate tolls from the commercial

operational date of the SBHL Project until the end of the concession period. The toll rates will be determined in

accordance with the SBHL Concession Agreement and the National Highways Fee (Determination of Rates and

Collection) Rules, 2008, the National Highways Fee (Determination of Rates and Collection) Amendment Rules,

2010 and the National Highways Fee (Determination of Rates and Collection) Amendment Rules, 2011 and are

subject to revision annually on April 1. In the event that the average daily traffic of vehicles in any accounting year

reaches a level equivalent to 120.0% of the designed capacity determined by SBHL and the PWDGR under the

SBHL Concession Agreement, the tolls levied and collected from the traffic exceeding such 120.0% will be payable

to the PWDGR and deposited by SBHL into a safety fund. The Ministry of Road Transport and Highways issued a

notification dated February 4, 2013 through which the Government of India announced that fees will be charged for

the use of the Sikar Bikaner Toll Road and SBHL is authorized to collect and retain fess from the commercial

operation date to the termination date.

Damages for delay by the PWDGR: In the event the PWDGR fails to fulfil any of its obligations within the

prescribed timelines (and such delay is not attributable to SBHL or force majeure events), the PWDGR will pay

SBHL an amount aggregating to 0.1% of the performance security for each day of delay until such conditions are

fulfilled subject to a maximum payment of 20.0% of the performance security.

Performance Security: SBHL will provide performance security in the form of an irrevocable, unconditional bank

guarantee for the performance of its obligations during the construction period, which may be appropriated by the

PWDGR upon the occurrence of a default by SBHL.

Change in scope of work: The PWDGR may require SBHL to perform additional work and services not originally

included in the scope of work of SBHL, in the manner set out in the SBHL Concession Agreement, if in the opinion

of the PWDGR, such change in scope of work is required to provide safer and improved services to the users of the

Sikar Bikaner Toll Road.

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Exemption for Local Users: SBHL is required to issue passes to local users who reside within 20.00 kilometers from

the nearest toll plaza, for non-commercial use of the Sikar Bikaner Toll Road. SBHL is also required to collect

50.0% of the prescribed toll from commercial vehicles (excluding vehicles plying under national permit) commuting

on that section of the Sikar Bikaner Toll Road if the vehicle is registered in the same district on which the toll plaza

is located except in cases where an alternate road is available for the use of such vehicles.

Discounted Fee for Frequent Users: SBHL will, upon request from any person, issue a return pass upon payment of

150.0% of the toll payable for a single one-way trip or issue 50 or more one-way toll tickets at a discounted rate of

two-thirds of the toll payable. The return pass will entitle the relevant vehicle to make a return journey within 24

hours from the time the toll was paid and the discounted one-way toll tickets will be valid for one month from the

date the toll was paid.

Revenue Shortfall Loan: If the amount of tolls collected and received by SBHL in an accounting year is less than the

operation and maintenance expenses and all payments owed to the senior lenders under the SBHL Project financing

agreements in an accounting year (the “Shortfall”) due to an indirect political event, political event or default by the

PWDGR set out in the SBHL Concession Agreement, the PWDGR will, upon request, provide SBHL a loan for

meeting the Shortfall at an interest rate of 2.0% above the interest rate specified by the Reserve Bank of India from

time to time (the “Revenue Shortfall Loan”). If the Shortfall occurs after the first six months of an accounting year,

SBHL will be entitled to a provisional Revenue Shortfall Loan. SBHL will pay the PWDGR 50.0% of its profits

before tax within 90 days of the close of the relevant accounting year and repay the entire Revenue Shortfall Loan

no later than one year prior to the expiry of the concession period. The provisional Revenue Shortfall Loan will be

repaid no later than 60 days after the close of the relevant accounting year or adjusted against the Revenue Shortfall

Loan (if provided).

Operation and Maintenance: Under the terms of the SBHL Concession Agreement, after commissioning of the

SBHL Project, SBHL is required to, among other things, operate and maintain the project, either by itself or through

a contractor, including by modifying, repairing or otherwise making improvements to the project in accordance with

the SBHL Concession Agreement. SBHL’s operation and maintenance obligations include:

permitting the safe, smooth and uninterrupted flow of traffic;

collecting and appropriating tolls from vehicular traffic;


the SBHL Project;

undertaking routine maintenance, including repairs of potholes, cracks, joints, drains, embankments,

structures, pavement markings, lighting, road signs and other traffic control devices;

undertaking major maintenance, including resurfacing of pavements, repairs to structures and

refurbishment of tolling systems and other equipment; and

operating and maintaining all communication, control and administrative systems necessary for the SBHL

Project.

Maintenance Manual: SBHL is required to, in consultation with the independent engineer appointed by the PWDGR

(the “SBHL Independent Engineer”), prepare a repair and maintenance manual (the “SBHL Maintenance

Manual”) for the regular and preventative maintenance of the SBHL Project in accordance with the specifications

and standards, maintenance requirements and safety requirements set out in the SBHL Concession Agreement and

good industry practice. The SBHL Maintenance Manual must be revised and updated once every three years.

Maintenance Programme: SBHL is required to provide the PWDGR and the SBHL Independent Engineer an annual

programme for preventive, urgent and other scheduled maintenance (the “SBHL Maintenance Programme”) to

ensure compliance with the SBHL Maintenance Manual and the maintenance requirements and safety requirements

set out in the SBHL Concession Agreement. The SBHL Maintenance Programme will be provided to the PWDGR

and the SBHL Independent Engineer on or before the commercial operation date of the SBHL Project and within 45

days of the start of each accounting year beginning April 1 during the operation period of the SBHL Project.

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Breach of Maintenance Obligations: In the event that SBHL fails to repair or rectify any defect or deficiency with

respect to the maintenance requirements set out in the SBHL Concession Agreement within the time specified

therein, the PWDGR will be entitled to damages calculated in accordance with the SBHL Concession Agreement.

Remedial Measures: In the event that SBHL fails to maintain and/or repair the SBHL Project in accordance with the

maintenance requirements under the SBHL Concession Agreement, the SBHL Maintenance Manual or the SBHL

Maintenance Programme, and fails to commence remedial works within 15 days of receiving an inspection report

issued by the SBHL Independent Engineer or a notice from the PWDGR or SBHL Independent Engineer, the

PWDGR will be entitled to undertake such remedial works. The PWDGR will be entitled to recover its costs for the

remedial works undertaken from SBHL and to damages calculated as 20.0% of such costs.

Construction of Additional Tollway: Under the SBHL Concession Agreement, the PWDGR is entitled to construct

an expressway or other toll road for the SBHL Project (the “Additional Tollway”) upon the 12th anniversary of the

appointed date without paying compensation to SBHL. However, the PWDGR may construct an Additional Tollway

upon the eighth anniversary of the appointed date, if the concession period is reduced to 12 years. The Additional

Tollway will not exceed the length of the SBHL Project by more than 20.0%. If the Additional Tollway is opened to

traffic between the 12th and 25th anniversary of the appointed date, SBHL will be entitled to an additional concession

period equal to the duration between the opening of the Additional Tollway and the 25th anniversary of the original

concession period under the SBHL Concession Agreement.

Competing Roads: The PWDGR, any State Government or Government entity will not, prior to the 10th anniversary

of the appointed date as defined in the SBHL Concession Agreement, construct or cause to be constructed any

competing road as defined in the SBHL Concession Agreement. However, this restriction will not apply if the

average traffic on the SBHL Project exceeds 90.0% of the designed capacity determined by SBHL and the PWDGR

under the SBHL Concession Agreement in any year. Subject to the terms of the SBHL Concession Agreement, in

the event an Additional Tollway or a competing road is set up in breach of the SBHL Concession Agreement, the

PWDGR is required to compensate SBHL with an amount equal to the difference between the average daily

realizable fee and the projected daily fee until the breach is cured. Such compensation is payable in addition to

termination payments, if any.

Modification of the Concession Period: Traffic on the SBHL Project on April 1, 2023 (the “Target Date”) is

estimated to be 12,357 users, per day (“Traffic Target”) by SBHL and the PWDGR. The actual traffic average will

be determined by traffic sampling undertaken one year prior to the Target Date, on the Target Date and on the first

anniversary of the Target Date. In the event that the actual traffic average falls short of the Traffic Target by more

than 2.5%, for every 1.0% shortfall, the concession period will be increased by 1.5% but not to exceed 20.0%. In the

event that the actual traffic average exceeds the Traffic Target by more than 2.5%, for every 1.0% excess, the

concession period will be reduced by 0.75% but not to exceed 10.0%. SBHL has the option to pay, in addition to the

concession fees, a premium of 25.0% of the tolls collected in the respective years in lieu of a reduction in the

concession period.

Augmentation of Capacity: SBHL and the PWDGR have agreed that the design capacity of the SBHL Project will

be an average daily traffic of 25,000 passenger car units. In the event that the average daily traffic in any accounting

year exceeds the designed capacity, the PWDGR may cause the preparation of a detailed project report, such

detailed project report will assess, among other things, the cost which may be incurred in the undertaking of such

augmentation and the extension of the concession period (such extension limited to five years) so as to provide

SBHL a post-tax return on equity of 16.0% per annum, at an assumed debt to equity ratio of 70:30. PWDGR may

thereafter, issue a notice to SBHL to undertake such augmentation within six months of the notice. In the event that

SBHL refuses to undertake such augmentation on the terms set out by the PWDGR, or fails to complete the

augmentation of capacity within the prescribed timelines, the PWDGR is entitled to terminate the SBHL Concession

Agreement in accordance with the termination provisions of the SBHL Concession Agreement.

Grant and Equity Support: The PWDGR will provide SBHL a grant of Rs. 2,473.20 million in cash to be used

towards meeting the total project cost of the SBHL Project (the “Equity Support”). The Equity Support will be

payable by the PWDGR after SBHL has expended its paid up share capital in tranches.

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Limitations on Shareholding Changes: Under the terms of the SBHL Concession Agreement, SBHL is subject to

restrictions on any change in ownership which is triggered if SBHL causes its shareholding to fall below 51.0%

during the construction period and for two years thereafter. Further, a sale of 15.0% or more of the shares in SBHL

or a change in the majority of the board of directors of SBHL will also constitute a change in ownership. A change

in ownership is not permitted except with the prior approval of the PWDGR, whose decision will be final and

binding on SBHL. The entire equity share capital of SBHL is owned by ITNL.

Insurance: SBHL is required to maintain, at its own cost (or through the O&M provider), during the term of the

SBHL Concession Agreement, insurance of such types and such amounts as are prudent in accordance with good

industry practice and as required under the financing documents. SBHL is also required to maintain insurance to

cover risks that may devolve on the PWDGR as a consequence of SBHL’s acts or omissions during the construction

period. In the event that SBHL fails to maintain such insurance, the PWDGR will be obliged to do so and will be

entitled to recover the cost of such insurance from SBHL.

Escrow Account: SBHL is required to open and establish an escrow account with a bank which is governed by an

escrow agreement entered into between SBHL, the PWDGR, the escrow bank and the senior lenders to the SBHL

Project. Under the terms of the SBHL Concession Agreement, all funds from the SBHL Project lenders, all tolls

collected and any other revenue from the SBHL Project, including the proceeds of any rentals, deposits, capital

receipts or insurance claims and all payments by the PDWGR, after deducting the Concession Fee will be deposited

into the escrow account. All permitted withdrawals by SBHL will be as per the terms of the SBHL Concession

Agreement. SBHL must instruct the escrow bank to make payments in the order below during the concession period

and such order cannot be modified without the prior written consent of the PWDGR:

all taxes due and payable by SBHL in respect of the SBHL Project;

all payments in relation to construction of the SBHL Project, subject to the terms of the relevant financing

agreements;

operation and maintenance expenses subject to the terms of the relevant financing agreements;

operation and maintenance expenses and other costs and expenses incurred by the PWDGR in accordance

with the SBHL Concession Agreement;

Concession Fee due and payable by the PWDGR;

monthly proportionate provision of all amounts due and payable to the senior lenders to the SBHL Project

in accordance with the relevant financing agreements in an accounting year;

all payments and damages payable to the PWDGR by SBHL;

monthly proportionate provision of debt service payments due in an accounting year in respect of

subordinated debt;

any reserve requirements set out in the relevant financing agreements; and

the balance, if any, in accordance with the instructions of SBHL.

Indemnities: SBHL is required, under the terms of the SBHL Concession Agreement, to indemnify the PWDGR, its

officers, servants, agents, government instrumentalities and government owned and controlled enterprises against all

any and all Loss arising out of SBHL’s breach of the SBHL Concession Agreement or any related agreements and

on account of any defect or deficiency in the provision of services under the SBHL Concession Agreement. Further,

the PWDGR is required to indemnify SBHL for Loss arising out of defects in title and rights of the PWDGR on the

land comprising the project site and/or a breach by the PWDGR of any of its obligations under the SBHL

Concession Agreement or any related agreement which materially and adversely affects SBHL’s ability to perform

its obligations under the SBHL Concession Agreement.

Step-in Rights: SBHL is required to ensure that each of the project agreements, such as any construction or

operations and maintenance agreements, contains provisions that entitle the PWDGR, in its sole discretion, to step

into such agreement and substitute SBHL in the event the SBHL Concession Agreement expires or is terminated or

all of SBHL’s rights under the SBHL Concession Agreement are suspended. In the event that the PWDGR does not

exercise its right of substitution within 90 days of expiry or termination of the SBHL Concession Agreement, such

project agreements will cease to be in force and effect from the date of expiry or termination of the SBHL


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Force Majeure: In the event of termination of the SBHL Concession Agreement on account of occurrence of a force

majeure event (as defined in the SBHL Concession Agreement), the PWDGR is required to make termination

payments to SBHL. In the event of termination due to (a) a non-political event, the PWDGR will be required make a

termination payment of an amount equal to 90.0% of the debt due, less the total maximum amount insured under the

insurance taken out by SBHL in accordance with the SBHL Concession Agreement (the “SBHL Insurance

Cover”), to SBHL; (b) an indirect political event, the PWDGR will be required make a termination payment of an

amount equal to the debt due, less the SBHL Insurance Cover (if the insurance claim forming part of the SBHL

Insurance Cover is not admitted and paid then 80.0% of such unpaid claim must be included in the debt due), and

110.0% of the adjusted equity (as defined in the SBHL Concession Agreement); and (c) a political event, the

PWDGR will be required make a termination payment of an amount payable by the PWDGR upon termination if it

had been in default under the SBHL Concession Agreement.

Compensation for breach of the SBHL Concession Agreement: In the event the PWDGR or SBHL is in material

default of the SBHL Concession Agreement, the defaulting party is required to compensate the other party for all

direct costs suffered or incurred by the other party on account of such default in accordance with the SBHL

Concession Agreement. Further, if (a) the material default leads to a suspension of collection of tolls by SBHL, the

PWDGR will, in addition to the compensation payment, extend the concession period by the amount of time for

which the collection of tolls was suspended; or (b) the material default results in a reduction in collection of tolls,

and the daily toll collection is less than 90.0% of the average daily toll collection, the PWDGR will extend the

concession period for a period that is in proportion to the loss of tolls on a daily basis.

Termination: The SBHL Concession Agreement may be terminated on the occurrence of SBHL’s default and

provided that the default has not been cured under the terms of the SBHL Concession Agreement; on the PWDGR’s

default; or in the event of a force majeure event continuing for a period of 180 days or more within a continuous

period of 365 days. SBHL will be deemed to be in default of the SBHL Concession Agreement, including if:

SBHL is in breach of the maintenance requirements (as defined in the SBHL Concession Agreement) or the

safety requirements set out in the SBHL Concession Agreement;

SBHL fails to make any payment to the PWDGR within the period specified in the SBHL Concession

Agreement;

an escrow default has occurred and SBHL fails to cure the default within a cure period of 15 days;

upon occurrence of a financial default, the Central Bank of India, as the representative to the lenders to the

SBHL Project, has by notice required the PWDGR to suspend all rights of SBHL under the SBHL

Concession Agreement and substitute SBHL in accordance with the substitution agreement entered into

between SBHL, the PWDGR and the Central Bank of India, and SBHL fails to cure the default within the

cure period specified in the such substitution agreement;

a breach of any of the project agreements by SBHL that has caused a material adverse effect on the ability

of either SBHL or the PWDGR to perform its obligations under the SBHL Concession Agreement and

causes a material financial burden or loss to either SBHL or the PWDGR;

SBHL creates any encumbrance in breach of the SBHL Concession Agreement;

SBHL repudiates the SBHL Concession Agreement or otherwise takes any action or evidences or conveys

an intention not to be bound by the SBHL Concession Agreement;

a change in ownership has occurred in breach of the SBHL Concession Agreement;

there is a transfer of either the rights and/or obligations of SBHL under any of the project agreements or of

all or part of the assets or undertaking of SBHL pursuant to law, and such transfer causes a material adverse

effect; or

SBHL commits a default in complying with any other provision of the SBHL Concession Agreement if

such a default causes a material adverse effect on the PWDGR.

The SBHL Concession Agreement may terminated by SBHL serving a termination notice to the PWDGR upon the

occurrence of default by the PWDGR, failure by the PWDGR to cure such default within the cure period prescribed

in the SBHL Concession Agreement and such default not having occurred on account of (a) SBHL’s default; or (b)

the occurrence of a force majeure event. A default by the PWDGR will include the occurrence of one or more of the

following events:

59

the PWDGR is in material breach of its obligations under the SBHL Concession Agreement and such

breach has a material adverse effect on SBHL;

the PWDGR repudiates the SBHL Concession Agreement or otherwise takes an action which expresses its

irrevocable intention not to be bound by it; or

the PWDGR has failed to make any payment to SBHL within the period specified by the SBHL Concession

Agreement.

In the event the SBHL Concession Agreement is terminated on account of SBHL’s default, the PWDGR is required

to make a termination payment of an amount equal to 90.0% of the debt due, less the SBHL Insurance Cover, to

SBHL (if any insurance claim forming part of the SBHL Insurance Cover is not admitted and paid, then 80.0% of

such unpaid claim must be included in the debt due). Where the SBHL Concession Agreement is terminated due to

the PWDGR’s default, the PWDGR is required to make a termination payment of an amount equal to the debt due

and 150.0% of the adjusted equity (as defined under the SBHL Concession Agreement) to SBHL. In the event the

PWDGR fails to make a termination payment within the prescribed timelines, it is required to pay interest in

accordance with the SBHL Concession Agreement.

Defects Liability after Termination: SBHL will be liable for all defects and deficiencies of the SBHL Project for a

period of 120 days after the termination of the SBHL Concession Agreement. For this purpose, a sum equal to 5.0%

of the total tolls collected for the year immediately preceding the date that the SBHL Project is transferred to the

PWDGR will be retained in an escrow account for 120 days after termination. SBHL may, instead of retaining 5.0%

of the total tolls collected, provide to the PWDGR a guarantee from a bank in an amount equal to such amount for

the purposes of meeting its post termination defects liability obligations.


SBHL Construction Contracts

SBHL entered into a development agreement with ITNL on November 23, 2012 in respect of the construction works

contemplated under the SBHL Concession Agreement. ITNL subsequently entered into two separate construction

contracts dated November 26, 2012 with G.R. Infraprojects Limited and the joint venture formed by ABCI

Infrastructure Private Limited and Dreamax Infra Developers Private Limited and a construction contract dated

January 23, 2015 with Shree Gautam Construction Limited (the “SBHL Contractors”) to subcontract the

construction work for the SBHL Project (the “SBHL Construction Contracts”).

Under the terms of the SBHL Construction Contracts, the SBHL Contractors are responsible for the construction

works and for the operation and maintenance of the existing road and the newly constructed road for the SBHL

Project from December 1, 2012 until the taking over date as defined in the SBHL Construction Contracts.

On October 10, 2015, the SBHL Independent Engineer issued a provisional completion certificate to certify that

construction of 212.60 kilometers out of the total 237.60 kilometers of the SBHL Project had been completed and

that such portion of the SBHL Project was fit for entry into commercial operation on October 10, 2015. Further, the

SBHL Independent Engineer issued a second provisional completion certificate dated August 16, 2016 to certify

completion of construction of an additional length of 22.09 kilometers, making a total tollable length of 234.66

kilometers. The remainder of the SBHL Project is expected to be completed by January 2017.

SBHL O&M Agreement and LOA

Under the terms of the SBHL O&M Agreement, ITNL is responsible for providing operations and maintenance

services to the SBHL Project during the concession period specified in the SBHL Concession Agreement. Pursuant

to the terms of the SBHL O&M Agreement, ITNL operates and maintains the SBHL Project and, where required,

modify, repair or otherwise make improvements to the SBHL Project. ITNL’s obligations are to maintain standards

of operation and maintenance in accordance with the SBHL Concession Agreement. ITNL has sub-contracted its

O&M obligations under the SBHL O&M Agreement to Elsamex Maintenance Services Limited.

60

Under the terms of the proposed amendment agreement to the SBHL O&M Agreement, ITNL will also carry out

major maintenance of the SBHL Project. Further, ITNL will agree to indemnify SBHL against all claims, liabilities,

costs, damages, losses and expenses (including legal fees) arising out of or as a result of, ITNL’s breach of any of its

obligations or deficiency in its services, to the extent of the fees received for the particular financial year by ITNL

for its services. In the event of any reduction in toll collection which is not on account of any default by SBHL,

ITNL will also agree to pay SBHL the difference between the average daily fee and actual toll collection for the

relevant period.

SBHL will be required to pay ITNL the fees as proposed to be set out under the terms of the proposed amendment

agreement to the SBHL O&M Agreement.

Under the terms of the SBHL O&M LOA, Elsamex Maintenance Services Limited is responsible for carrying out

O&M work in accordance with the SBHL Concession Agreement for a fixed O&M fee of Rs. 5.00 million per

month, which covers any cost incurred in undertaking routine maintenance. Elsamex Maintenance Services Limited

is also required to indemnify ITNL against any loss or damages arising as a result of Elsamex Maintenance Services

Limited’s failure to comply with applicable statutory rules and regulations. In addition, ITNL has agreed to

indemnify SBHL and PWDGR against any claim, liability, and damages in respect of sickness, injury or death of

any person employed by it or destruction to its equipment or property arising as a result of a non-performance by

ITNL of its obligations. Further, ITNL has also agreed to indemnify SBHL and PWDGR against third parties claims

which arise as result of negligence or omission on the part of ITNL.

NKEL Project

NKEL Concession Agreement

Annuity: NKEL is entitled to an annuity payment of Rs. 505.15 million once every six months with the first

instalment payable on June 20, 2005 and the final instalment payable on December 20, 2019. The NHAI may reduce

the annuity in the event that NKEL fails to keep the NKEL Project available as per the terms of the NKEL

Concession Agreement. The NKEL Project will be deemed to be unavailable if the actual availability falls below the

assured availability of the NKEL Project. The NKEL Project will also be deemed to be unavailable if the NKEL

Project or part thereof is closed for traffic otherwise than in accordance with the operation and maintenance

requirements set out in the NKEL Concession Agreement or, irrespective of whether it is closed for traffic or not,

the independent engineer appointed by the NHAI (the “NKEL Independent Engineer”) determines that the ride

quality of the NKEL Project is below acceptable levels set out in the NKEL Concession Agreement or that the

NKEL Project is unsafe for operations. In such event, the annuity payable will be adjusted in accordance with a

prescribed formula.

Operation and Maintenance: Under the terms of the NKEL Concession Agreement, after commissioning the NKEL

Project, NKEL is required to, among other things, operate and maintain the project, either by itself or through a

contractor, and ensure that the NKEL Project is maintained to the standards and specifications set out in the NKEL

Concession Agreement and Detailed Project Report provided by the NHAI (the “DPR”). NKEL’s operation and

maintenance obligations include:

ensuring that the NKEL Project is kept free from undue deterioration and undue wear;

ensuring that applicable and adequate safety measures are taken;

ensuring that minimum delay is caused to users of the NKEL Project;

ensuring that adverse effects on the environment and to the owners and occupiers of property and/or land in

the vicinity of the NKEL Project, due to any of NKEL’s actions, are minimized;

ensuring that all materials used in the maintenance, repair and replacement of any part of the NKEL Project

meet the design requirements and standards prescribed in the DPR;

undertaking routine maintenance to ensure the safe, smooth and uninterrupted flow of traffic during normal

operating conditions for 24 hours each day;

undertaking periodic maintenance to flexible pavements at the end of the 5th year, 10th year and 15th year

from the commercial operation date and to rigid pavements at the end of the 10th year from the commercial

operation date; and

61

carrying out emergency maintenance and repairs and developing an emergency response protocol which

sets out the steps to be taken and the measures to be adopted by NKEL in response to an emergency such as

a vehicle accident.

Operation and Maintenance Manual: NKEL is required to, in consultation with the NKEL Independent Engineer,

finalize an operation and maintenance manual (the “NKEL O&M Manual”). The NKEL O&M Manual sets out the

operations and maintenance standards and details of the operations and maintenance activities to be undertaken

during the concession period so that the NKEL Project conforms to the design requirements and specifications set

out in the DPR at all times.

Operation and Maintenance Plan: Prior to making the application for the completion certificate for the NKEL

Project, NKEL is required to, in consultation with the NKEL Independent Engineer, finalize an operation and

maintenance plan for the first year of operations. Thereafter, six weeks prior to the anniversary of the commercial

operation date of the NKEL Project, NKEL is required to submit an annual O&M plan for the following year of

operations.

Monthly Operation and Maintenance Report: During the concession period, NKEL is required to provide a monthly

report (the “Monthly O&M Report”) to the NKEL Independent Engineer or the NHAI within five days of the end

of each calendar month. The Monthly O&M Report must, at a minimum, contain information on inspections

undertaken by NKEL during the month and any action taken or proposed thereafter, details of all reports submitted

to the NKEL Independent Engineer during the month, the operation and maintenance inspection compliance report,

the maintenance activities undertaken during the month ended and details of any emergency and any action taken in

response.

Breach of Operation and Maintenance Requirements: NKEL will be in material breach of the operation and

maintenance requirements set out in the NKEL Concession Agreement, and the NHAI is entitled to terminate the

NKEL Concession Agreement, if the NKEL Independent Engineer deems that, due to NKEL’s breach of its

obligations:

there has been a failure or delay in carrying out scheduled or planned maintenance works;

the ride quality of the NKEL Project has fallen below the acceptable level;

there has been a serious or persistent let up in adhering to safety requirements and standards which has

resulted in the NKEL Project being unsafe for operations;

non-availability of the NKEL Project has exceeded 1,000.00 Lane Kilometer hours during any annuity

payment period; or

there has been a persistent breach of the operation and maintenance requirements.

Change in scope of work: The NHAI may require a change in scope of work by issuing an order in accordance with

NKEL Concession Agreement, provided that such change does not involve capital expenditure of Rs. 240 million.

Remedial Measures: In the event that NKEL fails to operate and maintain the NKEL Project in accordance with the

NKEL Concession Agreement and does not remedy such failure despite receiving a notice to remedy from the

NKEL Independent Engineer or the NHAI, the NHAI is entitled to undertake repair and maintenance works for the

NKEL Project. NKEL is required to reimburse the NHAI within seven days of receipt of the NHAI’s claim for all

costs incurred for such repair and maintenance works.

Levy and Collection of Fees: The NHAI has the right to levy tolls or fees on vehicles which travel on the NKEL

Project and demand, collect, retain and appropriate such fees in accordance with applicable law. NKEL will not

permit or allow any advertisements, including on hoardings, or other commercial activities on the NKEL Project or

to charge or collect any fees in respect thereof.

Augmentation of Capacity: Under the NKEL Concession Agreement, the NHAI may, at any time after the

commercial operation date, conduct a detailed traffic report to determine whether to augment the capacity of the

NKEL Project. The NHAI may invite bids from third parties to undertake the capacity augmentation and NKEL will

have the option to submit a bid. If NKEL is not the lowest bidder, it will be given a right of first refusal to match the

62

low bid. If NKEL chooses not to submit a bid or fails to match the preferred bid, the NHAI is entitled to accept the

low bid and terminate the NKEL Concession Agreement upon payment of the requisite termination payment.

Limitations on Shareholding Changes: Under the terms of the NKEL Concession Agreement, NKEL is subject to

restrictions on any change in ownership if the consortium members, Punj Lloyd Limited, IL&FS and ITNL (the

“NKEL Consortium”), cause their shareholding in NKEL to fall below 51.0% at any time until three years after the

commercial operation date and 26.0% for the remainder of the concession period. Further, Punj Lloyd Limited and

IL&FS must, at any time, each hold not less than 25.0% of the NKEL Consortium’s shareholding in NKEL. ITNL is

required to hold not less than 10.0% of the NKEL Consortium’s shareholding in NKEL until the commercial

operation date.

Pursuant to the NHAI circular number NHAI/11033/CGM(FA)/4/2015 dated September 6, 2015, in the event of a

100.0% equity divestment by ITNL, the sale proceeds from such divestments will be utilized towards (i) the

incomplete projects of the NHAI; (ii) any other highway projects; (iii) any power sector projects; or (iv) the payment

of debt to financial institutions in any other infrastructure projects. Accordingly, NKEL will be required to provide

details of the utilization of proceeds of such divestment by ITNL, while seeking consent from the NHAI for such

divestment.

Insurance: NKEL is required to purchase and maintain, at its own cost (or through the O&M provider), during the

implementation period of the NKEL Concession Agreement, such insurance as are necessary, including, but not

limited to, builders’ all risk insurance, third party liability insurance and workmen’s compensation insurance. NKEL

is also required to purchase and maintain, at its own cost (or through the O&M provider), during the operations

period of the NKEL Concession Agreement, insurance against loss, damage or destruction of the NKEL Project,

insurance against NKEL’s general liability arising out of the concession and insurance against liability to third

parties. During both the implementation period and operations period, NKEL must purchase and maintain any other

insurance that may be necessary to protect NKEL, its employees and its assets against any loss, damage, destruction,

business interruption or loss of profit, including insurance against all force majeure events that are insurable. In the

event that NKEL fails to obtain or maintain any of the insurance required under the NKEL Concession Agreement,

the NHAI may obtain and maintain such insurance and will be reimbursed for the costs incurred from NKEL.

Indemnities: NKEL is required, under the terms of the NKEL Concession Agreement, to indemnify the NHAI

against all proceedings, actions and third party claims arising out of NKEL’s breach of the NKEL Concession

Agreement except to the extent that such claim has arisen due to a breach of the NKEL Concession Agreement by

the NHAI or a force majeure event which is a political event. Further, the NHAI is required to indemnify NKEL for

all proceedings, actions and third party claims for loss, damage and expense of whatever kind and nature arising out

of a breach by the NHAI, its officers, servants and agents of any obligations under the NKEL Concession

Agreement except to the extent that such claim has arisen due to a breach of the NKEL Concession Agreement by

NKEL.

Step-in Rights: NKEL is required to ensure and procure that each project agreement in relation to the NKEL Project

contains provisions that entitle the NHAI or a nominee of the NHAI to, at its discretion, step into such agreement in

place and substitution of NKEL in the event of termination of the NKEL Concession Agreement.

Force Majeure: In the event the NKEL Concession Agreement is terminated due to the occurrence of a force

majeure event (as defined in the NKEL Concession Agreement), the NHAI is required to make termination

payments to NKEL. In the event of termination due to (a) a non-political event, no termination payment will be

made by the NHAI to NKEL but NKEL is entitled to receive the proceeds of any insurance it has obtained; (b) a

political event, the NHAI is required make a termination payment of an amount equal to the discounted value of

future net cash flows to NKEL; and (c) any other event (as defined in the NKEL Concession Agreement), the NHAI

will be required make a termination payment equal to 75.0% of the discounted value of future net cash flows to

NKEL.

Termination: The NKEL Concession Agreement may be terminated on the occurrence of NKEL’s default and

provided that the default has not been cured under the terms of the NKEL Concession Agreement, on the NHAI’s

default, in the event of a force majeure event (not being a political event or other event as defined under the NKEL

63

Concession Agreement) continuing for a period of 120 days, or in the event of a force majeure event which is a

political event continuing for a continuous period of more than 365 days. NKEL will be deemed to be in default of

the NKEL Concession Agreement if, among other things:

NKEL is in material breach of the operation and maintenance requirements under the NKEL Concession

Agreement;

any representation made or warranty given by NKEL under the NKEL Concession Agreement is found to

be false or misleading;

NKEL creates any encumbrance in breach of the NKEL Concession Agreement;

NKEL fails to ensure that the minimum shareholding requirement is met by the NKEL Consortium;

a resolution has been passed by the shareholders of NKEL for the voluntary winding-up of NKEL;

NKEL has abandoned the NKEL Project;

NKEL repudiates the NKEL Concession Agreement or otherwise expresses an intention not to be bound by

the NKEL Concession Agreement; or

NKEL has delayed any payment that has fallen due for 90 days or more.

In the event the NKEL Concession Agreement is terminated on account of NKEL’s default, the NHAI is required to

make a termination payment of an amount equal to 70.0% of the book value of the NKEL Project on the date of the

termination notice to NKEL. Where the NKEL Concession Agreement is terminated due to the NHAI’s default, the

NHAI is required to make a termination payment of an amount equal to the discounted value of future net cash

flows on the date of the termination notice in accordance with the NKEL Concession Agreement.

NKEL may terminate the NKEL Concession Agreement in the manner provided therein, on the occurrence of one or

more of the following events which will constitute a default by NHAI unless they are caused due to NKEL’s default

(as defined in the NKEL Concession Agreement) or a force majeure event:

the NHAI breaches its obligations under the NKEL concession agreement (except those obligations for

which specific remedy has been provided elsewhere) and fails to cure such breach within the time period

prescribed in the NKEL Concession Agreement;

the NHAI repudiates the NKEL Concession Agreement or otherwise expressed its intention not to be bound

by it;

the NHAI delays payment of any amount that has fallen due in terms of the NKEL Concession Agreement

beyond 90 days; and

any representations made or warranties given by the NHAI under the NKEL Concession Agreement is

found to be false and misleading.

Defects Liability after Termination: 12 months prior to the date of expiry of the concession period, the NHAI and

the Independent Engineer are entitled to conduct a joint inspection of the NKEL Project. The NKEL Independent

Engineer is to provide NKEL with a list of items (if any) to be completed in accordance with the requirements for

the transfer of the NKEL Project under the NKEL Concession Agreement within 15 days of such inspection. NKEL

is required to complete the list of items at least two months prior to the date of expiry of the Concession Period and

in the event it fails to do so, the NHAI is entitled to arrange for such work to be completed by a third party and be

reimbursed by NKEL for the costs incurred. The NHAI may, for this purpose, withhold a sum of Rs.126.30 million

from each instalment of the annuity payments to be made in the two years prior to the expiry of the Concession

Period or accept a bank guarantee for the same amount from NKEL.


NKEL Construction and Periodic Maintenance Contract

NKEL entered into the NKEL Construction and Periodic Maintenance Contract with Punj Lloyd Limited on January

21, 2002 in respect of the construction works and periodic maintenance works contemplated under the NKEL

Concession Agreement. Under the terms of the NKEL Construction and Periodic Maintenance Contract, Punj Lloyd

Limited is to design and construct, operate and maintain the NKEL Project during the implementation period and

carry out periodic maintenance of the NKEL Project in accordance with the terms of the NKEL Concession

64

Agreement. Under the terms of the NKEL Construction and Periodic Maintenance Contract, periodic maintenance to

flexible pavements must be carried out at the end of the fifth, 10th and 15th years from the commercial operation date

and to rigid pavements at the end of the 10th year from the commercial operation date.

Under the terms of the NKEL Construction and Periodic Maintenance Contract, NKEL is required to pay Punj

Lloyd Limited Rs. 4,500.00 million for the design, construction, testing and commissioning of the NKEL Project.

NKEL is also required to pay Punj Lloyd Limited a fee of Rs. 150.00 million for periodic maintenance at the

scheduled project completion date and at the fifth, 10th and 15th anniversaries of the scheduled project completion

date, subject to escalation at a rate of 3.0% semi-annually from the scheduled project completion date.

The scheduled project completion date was December 19, 2004. The NKEL Independent Engineer issued a

provisional completion certificate on January 23, 2004 and the NKEL Project became commercially operational on

July 19, 2004. On April 12, 2005, the NKEL Independent Engineer issued a completion certificate to certify that the

construction of the NKEL Project was completed.

NKEL O&M Agreement

Under the terms of the NKEL O&M Agreement, ITNL is responsible for supervising the construction of the NKEL

Project and providing routine O&M services to the NKEL Project during the concession period specified in the

NKEL Concession Agreement. Pursuant to the terms of the NKEL O&M Agreement, ITNL operates and maintains

the NKEL Project and, where required, inspect, manage, repair and test the NKEL Project. ITNL’s obligations are to

maintain standards of operation and maintenance in accordance with the NKEL Concession Agreement.

Under the terms of the proposed amendment agreement to the NKEL O&M Agreement, in addition to carrying out

routine maintenance of the NKEL Project, ITNL will also implement a corridor control plan to provide surveillance

of the project facilities (as defined in the NKEL O&M Agreement) and provide a monthly O&M report to NKEL. In

addition, NKEL will be required to pay ITNL the fees as proposed to be set out under the terms of the amendment

agreement to the NKEL O&M Agreement.

ITNL will also agree to indemnify NKEL against all direct claims, liabilities, costs, losses and expenses (including

legal fees) arising out of or as a result of, ITNL’s breach of any of its obligations or deficiency in its services, to the

extent of the fees received for the particular financial year by ITNL for its services. ITNL will agree to pay NKEL

for any shortfall in annuities paid by the NHAI, provided that the shortfall is not on account of any default by the

NHAI or there is no non-payment by NKEL to ITNL.

65

INDUSTRY

The information contained in this section is derived from various government and other industry sources. The

information also includes information available from reports or databases of CRISIL. Industry sources and

publications generally state that the information contained therein has been obtained from sources generally

believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and

their reliability cannot be assured. Industry publications are also prepared on information as of specific dates and

may no longer be current or reflect current trends.

CRISIL DISCLAIMER: CRISIL Research, a division of CRISIL Limited (CRISIL) has taken due care and caution in

preparing this report (Report) based on the Information obtained by CRISIL from sources which it considers

reliable (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report

and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. This

Report is not a recommendation to invest / disinvest in any entity covered in the Report and no part of this Report

should be construed as an expert advice or investment advice or any form of investment banking within the

meaning of any law or regulation. CRISIL especially states that it has no liability whatsoever to the subscribers /

users / transmitters/ distributors of this Report. Without limiting the generality of the foregoing, nothing in the

Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL

does not have the necessary permission and/or registration to carry out its business activities in this regard. IIML

Asset Advisors Limited will be responsible for consequences of non-compliances for wrongful/improper use of the

Report or part thereof. CRISIL Research operates independently of, and does not have access to information

obtained by CRISIL’s Ratings Division / CRISIL Risk and Infrastructure Solutions Ltd (CRIS), which may, in their

regular operations, obtain information of a confidential nature. The views expressed in this Report are that of

CRISIL Research and not of CRISIL’s Ratings Division / CRIS. No part of this Report may be

published/reproduced in any form without CRISIL’s prior written approval.

Overview of the Indian Economy

The Indian economy is the fourth largest economy in the world by purchasing power parity. (Source: The World

Factbook, available at https://www.cia.gov/library/publications/the-world-factbook/geos/in.html) The table below

illustrates the growth of the Indian GDP (based on 2011-12 prices) for the periods indicated.

India’s GDP (based on 2011-12 prices)

87 92 98 106114

122

5.6%

6.6%7.2%

7.6%7.9%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

20

40

60

80

100

120

140

FY12 FY13 FY14 FY15 FY16 FY17

GDP (Constant prices) Y-o-Y growth

(Rs trillion)

http://www.cia.gov/library/publications/the-world-factbook/geos/in.html

http://www.cia.gov/library/publications/the-world-factbook/geos/in.html

66

Source: CRISIL Research

In addition, the table below illustrates the GDP growth forecasts between 2016 and 2017 for certain developed and

developing economies:

India’s GDP growth forecast vis-a-vis selected economies


According to the table below, India’s forex reserves expanded to US$ 341.4 billion in financial year 2015 from

US$ 199.2 billion in financial year 2007, registering a compound annual growth rate (“CAGR”) of approximately

7.0%. The wholesale price index (“WPI”) inflation, after remaining high during financial years 2011 and 2012, has

shown signs of moderation since December 2011 and was at 2.4% for financial year 2015.

Forex Reserves and WPI in India

7.9%

6.5%

2.4%1.9%

1.1%0.6%

-1.8%

-3.8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

India China UnitedStates

UnitedKingdom

France SouthAfrica

Russia Brazil

India's GDP Growth forecasts vis-vis selected economies

Period of forecast India: FY17 Rest of the countries: 2016

67


India’s services sector remains the major driver of economic growth contributing almost 66.1% of its gross value

added (“GVA”) growth in financial year 2016. GVA is a method of calculating GDP that was adopted by India’s

Central Statistical Organization (“CSO”) in January 2015. According to the advance estimates released by the

CSO, the services sector growth was 9.2% in financial year 2016. This is mainly due to a lower growth of 6.9% in

public administration, defence and other services as compared to the 10.7% growth in financial year 2015. Growth

in infrastructure, based on an index of eight core industries – coal, crude oil, natural gas, refinery products, fertilizers,

steel, cement and electricity – registered a cumulative growth of 1.9% during April-December 2015-16 as compared to

5.7% for the same period in 2014-15. (Source: Economic Survey 2015-16, Volume II, available at

http://indiabudget.nic.in/index.asp)

According to CRISIL Research, urbanization levels in India have risen from 28.0% in 2001 to approximately

31.0% in 2011. Additionally, government consumption expenditure in India (at market prices) grew at a CAGR of

3.0-4.0% between financial years 2013 and 2016 while private consumption expenditure (at market prices) grew at

a CAGR of approximately 6.0-7.0% during the same period. Government consumption and private consumption are

expected to grow by 8.0% and 8.3% respectively in financial year 2017. (Source: CRISIL Research: Report on

Roads industry in India, September 2016)

The Government of India passed the Goods and Services Tax (“GST”) into law in 2016. According to CRISIL

Research, the GST will positively impact India’s GDP by 1.0-2.0%. If implemented well, the GST will improve the

ease of doing business and boast investments and export of goods. (Source: CRISIL Research: Report on Roads

industry in India, September 2016)

Overview of the Infrastructure Sector in India

As the economic growth of a country is dependent on availability of reliable and high quality infrastructure, there is

a focus on infrastructure development in India. The Government of India announced in its Union Budget 2015-16

that a fund to provide infrastructure development, the National Infrastructure Fund, would be established with an

annual funding of Rs. 200 billion from the Government of India. For financial year 2017, there is an increased total

outlay for infrastructure development of Rs. 2,212.46 billion. (Sources: Union Budget 2015-16 and Union Budget

2016-17, both available at http://indiabudget.nic.in/budget.asp)

199.2

309.2

252.3

277.0

303.5 294.8 292.6 303.7

341.4

6.6

4.7

8.1

3.9

9.6 8.9

7.3

6.0

2.4

-

2.0

4.0

6.0

8.0

10.0

12.0

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

USD billion

Forex Reserves USD billion Wholesale Price Index: Y-o-Y per cent

68

According to CRISIL Research, actual investment in the Eleventh Five Year Plan (2007-2012) (the “Eleventh

Plan”) was Rs. 19.5 trillion as against a budgeted investment of Rs 20.6 trillion, a 95.0% level of achievement. The

key driver was increased focus by the Government of India on improving infrastructure. (Source: CRISIL

Research: Report on Roads industry in India, September 2016)

According to the second report of the High Level Committee on Financing Infrastructure published in June 2014,

the amount of money to be spent on infrastructure projects in India is expected to be Rs. 30.93 trillion over

financial years 2012-17, with 39.0% contribution by the private sector and 61.0% by the central and state

governments. Within infrastructure, power and roads are estimated to be the largest contributors, followed by

railways, telecommunication and irrigation. (Source: CRISIL Research: Report on Roads industry in India,

September 2016)

According to the table below, investment in the roads section during the Eleventh Plan was Rs. 3.6 trillion as

against a planned investment of Rs 3.1 trillion. Investment in the roads sector accounted for approximately 19.0%

of the overall infrastructure investments during the same period. Investments in roads are expected to increase to Rs

5.8 trillion in the Twelfth Plan (2012-2017), a 61.0% increase from the envisaged investment in roads for the

Eleventh Plan (2007-2012). (Source: CRISIL Research: Report on Roads industry in India, September 2016).

Construction spends (Rs. trillion) in infrastructure segment (Eleventh and Twelfth Five-Year Plans)

*Others include irrigation, water supply and sanitation, storage, oil and gas pipelines


Infrastructure development is primarily driven by the Government of India’s initiatives for creating essential

facilities. The Government of India has implemented the National Highway Development Programme and the

Pradhan Mantri Gram Sadak Yojana as programs to encourage investments in the infrastructure sector. (Source:


Overview of the Road Sector in India

6.7

3.1 2.6 2.6 0.9 0.3

4.46.4

3.6 3.42.0 0.4 0.3

3.5

9.1

5.8

3.2 3.41.0 0.3

5.3

95%

115%130%

74%

40%

94%81%

0%

20%

40%

60%

80%

100%

120%

140%

0.01.02.03.04.05.06.07.08.09.0

10.0

Projected Investment (XI plan) Actual Investment (XI plan)

Projected investments (XII plan) Actual Investment as Proportion of Projected Investment

69

India has the second largest road network in the world with over 5.23 million kilometers of roads made up of

national highways, expressways, state highways, major district roads, other district roads and village roads. Roads

are the most common mode of transportation and account for approximately 86.0% of passenger traffic. As of

financial year 2016, India’s road network consists of 100,475 kilometers of national highways and expressways,

148,256 kilometers of state highways and 4,983,579 kilometers of other roads. (Source: CRISIL Research: Report

on Roads industry in India, September 2016)

Road network Length Percentage of total Connectivity to

(km) Length Traffic

National Highway 100,475 2 40 Union capital, State capitals, Major ports,

Foreign Highways

State Highway 148,256 3

60 Major centres within the state, national

highways

Other roads 4,983,579 95

Major and other district roads, Rural

Roads-Production, Centres, Markets,

Highways, Railway Stations

Total 5,232,310 100 100 Source: CRISIL Research

The Ministry of Road Transport and Highways (the “MoRTH”) is the Government of India’s authority

responsible for the formulation and administration of policies for road transport, national highways and transport

research. The MoRTH consults with other central ministries, departments, state governments, organizations and

individuals. The aim of the MoRTH is to increase mobility and the efficiency of the road transport system in

India. (Source: Ministry of Road Transport and Highways, available at

http://morth.nic.in/index1.asp?lang=1&linkid=10&lid=144

National Highways

Overview

The length of the national highways in India has grown from approximately 96,214 kilometers in financial year

2015 (Source: Ministry of Road Transport and Highways, Annual Report 2014-2015, available at

http://morth.nic.in/index2.asp?slid=297&sublinkid=139&lang=1) to approximately 100,475 kilometers in

financial year 2016. The national highways constitute less than 2.0% of India’s entire road network but they carry

40.0% of total road traffic. (Source: CRISIL Research: Report on Roads industry in India, September 2016) As a

result, significant investments are proposed to augment the existing road infrastructure in the country.

The National Highways Authority of India (the “NHAI”) was constituted under the National Highways Authority

of India Act, 1988. The NHAI is responsible for the development, maintenance and management of national

highways allocated to it and for matters connected or incidental thereto. The NHAI began operating in February

1995. (Source: National Highways Authority of India, available at http://www.nhai.org/estd.htm)

Award of projects by the NHAI

According to the Union Budget 2016-17, the largest amount of new highways (in terms of kilometers) was awarded by

the NHAI for development in financial year 2015. (Source: Union Budget 2016-17) According to CRISIL Research, it

is expected that momentum in the highways sector will build up. This is as a result of the construction of the

remaining length of roads under the National Highway Development Programme (the “NHDP”), the development of

new projects and upgradation of state highways to national highways. (Source: CRISIL Research: Report on Roads

industry in India, September 2016).

70

The graph below illustrates, in terms of kilometers, the extent of projects that have been awarded by the NHAI and

the projects that are expected to be awarded by the NHAI for the periods indicated:


However, private participation in project development is low and the NHAI’s cess funds have been cut significantly

in 2016. Therefore, the NHAI’s ability to raise funds through borrowings will determine the pace of development of

such projects. The table below illustrates the projected length of roads to be constructed or upgraded by the NHAI

for the periods indicated:

Execution of national highways through the NHAI: Total length constructed/upgraded

P: Projected


Estimated investments in national highways

Between financial years 2017 and 2021, CRISIL Research expects an investment of Rs. 3.8 trillion towards the

development of national highways – this is 3.2 times the increase in the next five years compared with the past five

years, as reflected in the table below. The Government of India will account for more than half of the investments

against 44.0% in the previous five years.

2,2701,055 1,200

3,0184,200

5,160 5,6766,456 6,616

7,620

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17P 2017-18P 2018-19P 2019-20P 2020-21P

NHAI awarding

NHAI awarding

Km

2,2072,481

1,628 1,5762,196

3,040

4,242

5,161 5,406 5,655

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17P 2017-18P 2018-19P 2019-20P 2020-21P

(Kms)

71

National highways: Estimated investments (Rs. billion)

P: Projected

E: Estimated


National Highway Development Programme

The NHDP is one of the world’s largest highway projects to date and is being undertaken in phases. The rapid

expansion of passenger and freight traffic makes it imperative to improve the road network in India. Accordingly, the

Government of India has launched major initiatives to upgrade and strengthen national highways through various

phases of the NHDP. (Source: Citizen Charter of NHAI (April 2012) available at

http://www.nhai.org/NHAI%20Citizen%20Charter%20(Final).pdf)

According to the MoRTH, the expenditure on the NHDP is estimated at approximately Rs. 6,000 billion. (Source:

Ministry of Road Transport and Highways, Annual Report 2015-16, available at

http://morth.nic.in/index2.asp?slid=297&sublinkid=139&lang=1)

The details of the various phases of the NHDP are outlined below:

NHDP Phase I: NHDP Phase I was approved by the Government of India in December 2000 at an estimated

cost of Rs. 303 billion (1999 prices) and comprises Golden Quadrilateral (“GQ”) (5,846 kilometers), North South-

East West Corridor (“NS-EW”) (981 kilometers), Port Connectivity (356 kilometers) and other national highways

(315 kilometers).

NHDP Phase II: NHDP Phase II was approved in December 2003 at an estimated cost of Rs. 343.39 billion (2002

prices) and comprises NS-EW (6,161 kilometers) and other national highways of 486 kilometers length.

NHDP Phase III: The Government of India approved the upgrading and four laning of 4,000 kilometers of national

highways on a build-operate-transfer (“BOT”) basis at an estimated cost of Rs. 220 billion under NHDP Phase

IIIA in March 2005. In October 2006 and April 2007, the Government of India approved additional stretches of

roads for upgrading, making a total length of 12,109 kilometers of national highways on a BOT basis at an estimated

cost of Rs. 806.26 billion approved under NHDP Phase III.

Rs 1.2 trillion Rs 3.8 trillion

72

NHDP Phase IV: The Government of India approved the upgrading of about 20,000 kilometers of national

highways to two lanes with paved shoulder in July 2008 at an estimated cost of Rs. 785 billion under NHDP

Phase IV.

NHDP Phase V: In October 2006, the Government of India approved the six laning of 6,500 kilometers of existing

four lane highways under NHDP Phase V at an estimated cost of Rs. 412.10 billion (at 2006 prices). The six

laning project includes 5,700 kilometers of GQ and 800 kilometers of other stretches of road.

NHDP Phase VI: In November 2006, the Government of India approved 1,000 kilometers of expressways at an

estimated cost of Rs. 166.80 billion (at 2006 prices) under NHDP Phase VI (on a design-build-finance-operate

basis).

NHDP Phase VII: In December 2007, the Government of India approved the implementation of NHDP Phase VII

which envisages the construction of stand-alone ring roads, bypasses, grade separators, flyovers, elevated roads,

tunnels, road over bridges, underpasses, service roads, etc. on BOT (Toll) mode at an estimated cost of Rs. 166.80

billion (at 2007 prices).

(Source: Ministry of Road Transport and Highways, Annual Report 2015-2016)

The various phases of the NHDP are being implemented. The present phases are improving more than 48,500

kilometers of arterial routes of the national highway network. The table below illustrates the details and the latest

status updates of the NHDP and other NHAI projects as of July 31, 2016:

NHDP Total Length

(kilometers)

Already 4 or 6

Laned

(kilometers)

Under

Implementation

(kilometers)

Contracts Under

Implementation

(No.)

Balance length

for award

(kilometers)

GQ1 5,846 5,846 (100.0%) 0 0 -

NS-EW Ph. I & II2 7,142 6,465 420 35 257

Port Connectivity 435 379 56 7 -

NHDP Phase III 11,809 7,032 3,135 75 1,642

NHDP Phase IV3 13,203 2,550 5,581 82 5,072

NHDP Phase V 6,500 2,439 721 24 3,340

NHDP Phase VI 1,000 - 165 8 835

NHDP Phase VII 700 22 98 4 580

NHDP Total 46,635 24,733 10,176 235 11,726

Others (Phase I,

Phase II and

Miscellaneous)

1,845 1,690 155 9 -

SARDP – NE4 110 105 5 1 -

Total by the NHAI 48,590 26,528* 10,336 245 11,726 1 GQ connects four metropolitan cities (Delhi-Mumbai-Chennai-Kolkata-Delhi). 2 North South (NS) Corridor connects Srinagar to Kanniakumari and East West (EW) Corridor connects Porbandar to Silchar. 3 Total 20,000 kilometers was approved under NHDP Phase IV, out of which 14,799 kilometers are assigned to the NHAI with

the remaining length of 5 ,201 kilometers allocated to MoRTH. 4 Special Accelerated Road Development Programme for the development of road networks in the North-East Region.

(Source: National Highways Authority of India, available at www.nhai.org/WHATITIS.asp)

The table below reflects the status of the NHDP as of July 31, 2016:

73

(Source: National Highways Authority of India, available at: http://www.nhai.org/nhdpmain_english.htm#)

74

State Roads

Overview

State roads and major district roads constitute approximately 98.0% of India’s total road network and handle

approximately 60.0% of India’s road traffic. (Source: CRISIL Research: Report on Roads industry in India,

September 2016).

In expanding the network of roads in India, including in particular state highways which are part of the secondary

road transportation network, state governments have invested, including by way of public private partnerships

(“PPP”), through the Government of India’s viability gap funding (“VGF”) program. Under the VGF program,

the funding will be in the form of a capital grant, an amount equal to the lowest bid for capital subsidy but subject to

a maximum of 20.0% of the total project cost, which is provided at the construction stage of a project. (Source:

Department of Economic Affairs, Government of India, Guidelines for VGF, available at

http://finmin.nic.in/the_ministry/dept_eco_affairs/ppp/Guidelines_VGF.asp)

Propelled by higher budgetary allocations by India’s state governments, investment in state roads is expected to

grow steadily at a CAGR of around 8.0% between financial years 2017 and 2021 compared with 12.0% CAGR (on

a lower base) during the preceding five years. The table below illustrates the overall estimated and projected

investments in state roads.

State roads: Overall investments (Rs. billion)

P: Projected

E: Estimated


Rs 2.8 trillion Rs 4.4 trillion

75

Relevant state authorities

State of Rajasthan

The State of Rajasthan (“Rajasthan”) is India’s largest state by area, with over 340,000 square kilometers in size,

and it is located in the north western part of India. Rajasthan was one of the first states in India to execute road

development projects on a BOT basis. The Government of Rajasthan plans to build 20,000 kilometers of roads,

through PPP, between 2015 and 2020. (Source: Resurgent Rajasthan, Publications, available at

http://resurgent.rajasthan.gov.in/publications)

State of Karnataka

The State of Karnataka (“Karnataka”) is a state in south western India which is over 190,000 square kilometers in

size. The allocation for infrastructure projects has increased by 45.0% in the period 2012-16 over 2008-12. There are

new infrastructure projects at an estimated value of US$ 17, 250 million. Karnataka is said to have the second

highest road density among the 10 largest states in India. In its infrastructure policy published in 2007 and amended

in October 2015, the Government of Karnataka focused on providing and facilitating an increasing role for PPP in

new and existing infrastructure projects. (Sources: Invest Karnataka 2016, Policies, available at

http://www.investkarnataka.co.in/policies and Invest Karnataka 2016, Infrastructure, available at

http://www.investkarnataka.co.in/focus-sector-infrastructure)

State of Jharkhand

The State of Jharkhand (“Jharkhand”) is a state in eastern India approximately 80,000 square kilometers in size.

Approximately 40.0% of the minerals in India are located in Jharkhand. Jharkhand has 1,600 square kilometers of

national highways and 2,711 square kilometers of state highways and the golden quadrilateral super highway passes

through it. (Sources: Department of Industries – Government of Jharkhand, Jharkhand Face to Face with

Opportunity and Jharkhand, the land of limitless opportunities, both available at

http://www.jharkhand.gov.in/web/guest/indu-view?dc=publications&dp=Indu)

Overview of Vehicle Traffic in India

Road freight traffic

During financial year 2016, CRISIL Research estimates that 65.0% of total freight traffic in India was carried by

roads, an increase from financial year 2010 where roads accounted for approximately 58.0% of the total freight traffic

in India. (Source: CRISIL Research: Report on Roads industry in India, September 2016)

Road traffic, estimated to have grown approximately 7.0-8.0% between financial years 2008 and 2011, slowed down

to approximately 2.0-4.0% in the last couple of financial years. This was principally due to a lack of growth in

commercial vehicle traffic, a consequence of the economic slowdown. However, with an improvement in economic

activity, traffic growth was at approximately 7.0-8.0% in financial year 2016, with commercial vehicle traffic at

approximately 10.0%. Also, indications are that traffic grew 6.0-7.0% in the first quarter of financial year 2017.


76

Proportion of freight traffic across modes of transport – Year 2009-10 E

E: Estimated

Note: For details, kindly refer to CRISIL Research’s coverage on Domestic Freight Transportation Services Industry


Proportion of freight traffic across modes of transport – Year 2015-16 E

E: Estimated

Note: For details, kindly refer to CRISIL Research’s coverage on Domestic Freight Transportation Services Industry


Road58

Rail32

Pipeline5

Coastal5

Road65

Rail25

Pipeline7 Coastal

3

(per cent)

(per cent)

77

Passenger traffic

Since financial year 1951, the proportion of passenger traffic for roads as against railways has consistently grown from

15.0% to 86.0% in financial year 2012. This contrasts with the proportion of passenger traffic for railways as against

roads which has reduced from 85.0% to 14.0% during the same period.

Passenger traffic: Roads v/s railways


Key drivers for increased traffic

Industrial activity

The primary freight in billion-tonne-kilometer is expected to increase by 6.0-8.0% on a year-on-year basis in financial

year 2017 from an estimate of 4.3% in financial year 2016. (Source: CRISIL Research: Report on Roads industry in

India, September 2016)

CRISIL Research expects a rise in overall freight traffic on account of a projected 7.6% growth in industrial GDP in

financial year 2017 against a 7.4% growth in financial year 2016. Some reasons for a rise in freight movement are an

expected improvement in demand from primary freight-generating sectors (such as construction of infrastructure),

higher disposable incomes coupled with lower inflation rate, development in infrastructure driven by Government of

India’s initiatives, and an increase in implementation of road, railway, urban infrastructure and irrigation projects.


The table below illustrates certain freight generating parameters which are expected to improve during financial year

2017:

Freight generating

parameters

Growth in volumes

Key growth drivers 2013-

14

2014-

15

2015-

16E

2016-

17P

15

51

6472 72

82 86 86 86 86

85

49

36

28 28

18 14 14 14 14

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2004-05 2009-10 2010-11 2011-12

(per cent)

Road passengers Railway Passengers

78

Industrial GDP 5.0% 5.9% 7.4% 7.6%

(i) Improvement in rural demand on account of

normal monsoons (ii) Improvement in private

consumption demand, aided by a rise in discretionary

spending. As fuel inflation remains under control, the

lagged impact of interest rate cut plays out and Pay

Commission hikes kick in (iii) Improvement in mining

activity

Mining

-Coal mining 3.3% 11.7% 2.2% 7-9%

Rising domestic coal production, particularly from CIL,

and capacity additions in power sector will support

growth in coal demand.

-Iron mining 6.6% -5.5% 22.0% 12-14%

Iron ore mining is expected to improve, subject to mining

resumption in Goa and Karnataka and renewal of leases

in Odisha and Jharkhand.

Manufacturing

-Cement 2.7% 5.2% 4.6% 5-7%

Govt. focus on infrastructure, construction of new capital

of Andhra Pradesh to drive demand. In addition, better

monsoon and announcement of incentives by central

government would support demand

-Steel products 0.4% 0.6% 3.5% 4-6% Improvement in construction activity and higher sales of

automobiles and consumer durables to drive demand

-Cars and UVs -6.0% 3.7% 7.3% 8-10%

Improved economic growth, lower inflation,

improvement in disposable incomes, lower cost of

ownership, and launch of new models to drive demand

-Two-wheelers 7.3% 7.9% 3.0% 8-10%

Lower cost of ownership with an increase in farm

incomes (assuming normal monsoons) will drive demand

during 2016-17. Seventh Pay Commission to support

growth as well

-Consumer durables^ 0.3% 7.9% 5.5% 7-9%

Stability in prices due to declining input costs, lower

interest rates, and flat inflation leading to improved

consumer sentiments. Pent-up demand and lower

penetration in some appliances to also support growth.

There was a moderation in demand in FY16 due to

deficient rainfall, which primarily impacted rural

demand; to improve in FY17 as rural incomes improve

due to normal monsoon.

-Pharmaceuticals* 11.5% 8.2% 12.3% 10-12%

Exports to grow led by demand from regulated markets

(such as US) for low-cost generics. Chronic care drugs to

drive domestic demand.

-Fertilisers 2.9% 2.0% 7.0% (3)-(2)%

Though above normal monsoon is expected to improve

consumption by 4-4.5% on-year in 2016-17, high

inventory in the system will lead to decline in sales by

~10% on-year for non-urea players.

-Textiles (RMG) 6.5% 7.0% 6.0% 6-8% Improvement in economic scenario and lower raw

material prices to drive volume growth.

Construction

-Infrastructure* 19.2% -1.6% 12.5% 9-11%

Central government's focus on implementation of roads,

railways urban infrastructure, and irrigation projects to

drive infrastructure construction,

-Industrial* -15.0% -11.0% -5.0% 9-11%

Muted demand and low capacity utilisation continued to

affect industrial construction in FY16; automobiles and

oil and gas to drive growth in FY17.

79

Agri GDP 4.2% -0.2% 1.1% 4.0% Agricultural GDP to grow at a faster pace in FY17

with expectations of normal monsoon.

* In value terms

^ Household applicances such as TVs, refrigerators, washing machines and air-conditioners

GDF figures are based on the new calculation method


The tables below illustrate an improvement in key freight indicators – such as freight availability and diesel

consumption – for the periods indicated:

Stability of freight rates indicate improving freight availability

Note 1) Average freight rate – Average of weekly freight rates (for 9T payload trucks) for 24 routes originating from Delhi

Note 2) “t/km” means tonne kilometer

Note 3) Average mileage assumed – 3 km/ltr; Diesel price for Delhi used for calculation


Diesel consumption rose 7.6% in 2015-16

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

FY2015 FY2016 FY2017

Diesel price Average freight rate (RHS)

(Rs./tkm) (Rs./tkm)

FY16 saw stable freight rates with fallingdiesel prices

With rising diesel prices, freight rates remained stable in CY 2016. Freight rates are expected to react in the second half

80

* Trucks, three-wheelers and trains


According to CRISIL Research, the increase in industrial production, steady growth in agriculture and the

Government of India’s focus on infrastructure (including road infrastructure), through increased budget allocations,

would result in 7.0-9.0% CAGR in freight demand between financial years 2016 and 2021. (Source: CRISIL

Research: Report on Roads industry in India, September 2016)

Passenger vehicle sales

There is potential for growth in the area of domestic sales of cars and utility vehicles in India. Growth is expected to

be driven by an increase in disposable income, relatively stable cost of ownership, greater urbanization, a growing

working population and easy availability of finance to support car sales. It is expected that such sales will grow at

11.0-13.0% CAGR from financial years 2016 to 2020. A 6.0% CAGR was recorded in the last five years. (Source:


Households that can afford a car will continue to increase significantly over the next 5 years

-5%

0%

5%

10%

15%

20%

25%

De

c-1

4

Jan

-15

Fe

b-1

5

Ma

r-1

5

Ap

r-15

Ma

y-1

5

Jun

-15

Jul-

15

Au

g-1

5

Se

p-1

5

Oct-

15

No

v-1

5

De

c-1

5

Jan

-16

Fe

b-1

6

Ma

r-1

6

Ap

r-16

Ma

y-1

6

Diesel consumption y-o-y growth rate

Diesel consumption picked up In 2015-16. Freight transportation sector*

accounts for 35-40% of diesel consumption

Diesel consumption again picks up near the end of

2015-16

238

267285

31

71

115

1223

37

2009-10E 2015-16E 2019-20P

Total Households Addressable households Total passenger vehicle population

Million

81

P: Projected

E: Expected

Assumptions: Household income is based on 2002-03 prices. Addressable market is estimated on the basis of cost of owning a

vehicle at 30% of house hold income.


India, in comparison with other countries, is an under-penetrated automobile market. According to CRISIL Research,

it is expected that passenger vehicle penetration will increase from approximately 17 cars per 1,000 people in

financial year 2014 to 27 cars per 1,000 people in financial year 2020. (Source: CRISIL Research: Report on Roads

industry in India, September 2016)

Low penetration offers high growth opportunity

Note: Figures denote number of passenger vehicles per 1,000 population.


Commercial vehicle sales

According to CRISIL Research, the increase in industrial production, steady growth in agriculture and the

Government of India’s focus on infrastructure would project an increase in medium and heavy commercial vehicles

sales at approximately 9.0-11.0% CAGR between financial years 2016 and 2021. It is also expected that industry

GDP at an average of 7.5% post financial year 2015 will help in the growth of commercial vehicle sales. (Source:


Government initiatives on road projects

Tolling policy

The Government of India is authorized to levy a fee (toll) under the National Highways Act, 1956 for public-funded

and private investment projects. The Government of India is entitled to levy fees on all sections of national

highways, tunnels, bypasses and bridges with specific cost criteria.

The toll rates are expected to be revised every year, effective from April 1, by an increase of 3.0% on base rates of

2007-08 and 40% increase in WPI over the previous year. Recent amendments to the fees are as follows:

In respect of a section of a four-lane highway upgraded to a six-lane highway, the increase in rate of fee is

limited to 75.0% of the fee specified as per applicable rules calculated on and from the date of

commencement of the work relating to upgradation, until the date of completion of the project, according to

the agreement entered into with the concessionaire without any annual revision. No user fee may be levied for

the delayed period between the date of completion as per the agreement entered into with the concessionaire

1739

93

147196

270294

385

476500

526

588

India

Chin

a

Th

aila

nd

Bra

zil

Me

xic

o

Russia

S K

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a

US

A

Jap

an

UK

Ge

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aly

82

and the date of actual completion of the project. Any provisional completion of the project is not be treated as

completion of the project.

The rate of fee for use of an expressway is 1.25 times the rate specified in the applicable rule.

In respect of private investment projects, the rate of fee is as specified under the applicable rule or such lower

rates as the concessionaire may determine by giving public notice to users, specifying the applicable

categories of vehicles.

The rate of fee for use of a standalone structure as well as a structure forming part of a linear

highway/expressway is calculated by converting the length of structure into an equivalent length of

highway/expressway, by multiplying by a factor of 10, provided that a structure of 60 meters of length or less,

on a linear highway/expressway, is considered as a part of normal length of highway/expressway for the

calculation of fees.

Following amendments made in December 2013, the NHAI empowered the concessionaire to collect 10 times

the applicable fee from overloaded vehicles. Further amendments in December 2015 have given the

concessionaire the authority to stop vehicles from plying on the national highway without payment of fee due.

Any vehicle with a load in excess of its maximum permissible gross vehicle weight is not permitted to use the

national highway or cross the toll plaza unless the excess load is removed or a fee 10 times the applicable fee

is paid. Moreover, the concessionaire is allowed to detain the vehicle until all fees are paid.

Financial incentives for road developers

Under section 80IA of the Income Tax Act, profits and gains derived by an undertaking are subject to 100.0%

deduction for 10 consecutive assessment years out of 20 years, beginning from the year in which the

undertaking begins to operate the business, provided that such profits and gains are derived from the business

of (i) developing, (ii) operating and maintaining, or (iii) developing, operating and maintaining a road.

Deduction of up to 40.0% of the income from the financing of an infrastructure project is available, provided

that such an amount is kept in a special reserve.

Import duty is exempted for public-funded needs on certain high-quality construction plants and equipment.

Import of bitumen is permitted under the open general license.

External commercial borrowings of up to 35.0% of the project cost are permitted.


Key budget announcements for road sector in India

The Union Budget 2016-17 proposed a 49.0% (on a year-on-year basis) rise in investments for the

development of national highways to Rs. 1.03 trillion, of which Rs. 440 billion is expected to be from

budgetary support and the rest is from internal and extra budgetary resources. This would support continued

rise in public investments for highway execution.

The Union Budget 2015-16 clarified that dividend distribution tax will not be applicable on distribution made

from special purpose vehicles to infrastructure investment trusts, to boost investor confidence.

Initiatives to boost private participation:

o a public utility bill will be introduced during financial year 2017 to streamline institutional

arrangements for resolution of disputes in infrastructure-related construction contracts, PPP and public

utility contracts;

83

o guidelines for renegotiation of PPP concession agreements will be issued, in view of the long-term

nature of such contracts and potential uncertainties of the real economy; and

o a new credit rating system for infrastructure projects which gives emphasis on various in-built credit

enhancement structures will be developed.

Countervailing duty of 12.5% on specified machinery required for construction of roads will be applicable,

increasing capital spending cost for people who import such machinery.


Financing of Road Projects in India

The modes of procurement adopted for the implementation of highway projects can be classified into PPP, public

funded projects and the hybrid annuity model.

The awards under the NHDP are proposed to be completed by the end of financial year 2017. The estimated award

of projects under the various phases of the NHDP is given below:

Awards (Kilometers)

Financial year 2016 Financial year 2017

BOT EPC Hybrid

Annuity

Total BOT EPC Hybrid

Annuity

Total

Phase II 71 294 - 365 - - - -

Phase III 109 604 50 763 - 179 330 509

Phase IV 1150 2557 416 4123 664 3976 1475 6115

Phase V 704 10 - 714 790 - - 790

Phase VI

Expressway

- 135 50 185 - - - -

Phase VII - - 60 60 - - - -

NH (O) - 6 - 6 - - - -

Grand

TOTAL

2034 3606 576 6216 1454 4155 1805 7414

(Source: Ministry of Road Transport and Highways, Government of India, Outcome Budget 2016-17)

Central Road Fund

The Central Road Fund (“CRF”) was given statutory status by the Central Road Fund Act, 2000 enacted in

December 2000. The CRF consists of the cess collected on the sale of diesel petrol. Under the Union Budget 2015-

16, conversion of existing excise duty on petrol and diesel into cess at Rs. 4 per liter will provide an additional

Rs. 400 billion to fund investment in roads and other infrastructure. The MoRTH provides funds for the

development of state roads from the amounts collected by the CRF and also provides funds for the development

of roads under the Inter-State Connectivity Scheme and the Economic Importance Scheme. The allocation and

expenditure of funds are illustrated in the table below:

Item 2014-15

(Rs. in million)

2015-16

(Rs. in million) 2016-17

(Rs. in

million)

Budget

estimates

Revised

Estimates

Expenditure Budget

estimates

Revised

Estimate Expenditur

e as of

December

31, 2015

Budget

estimates

Grants to States and UTs

for State Roads (CRF) 26,430 26,356 20,947.80 29,100 29,100 16,240.80 100,993

Grants to States and UTs 2,936.3 2,510 931.10 2,940 3,553.50 965.30 12,330

84

for roads of Inter-State

Connectivity and Economic

Importance

(Sources: Make in India, Ministry of Road Transport and Highways, Government of India, Outcome Budget 2016-17 available at

http://morth.nic.in/index2.asp?slid=287&sublinkid=136&lang=1 and Union Budget 2015-16)

Toll business model

The construction or upgradation of national and state highways in India may be undertaken by the BOT or

engineering procurement and construction (“EPC”) method.

In respect of BOT (Toll) projects, the concessionaire meets the construction and operational costs and periodic

maintenance cost. The concessionaire is authorized to levy, collect and retain user fees from road users, which

forms the revenue stream for the concessionaire. The amount of user fees to be collected on the given stretch is

fixed by the authority and is increased in the successive year as per changes in WPI.

In respect of BOT (Annuity) projects, the concessionaire is required to meet the upfront cost of construction and

expenditure on annual maintenance. The concessionaire recovers the entire investment out of the annuities payable

by the granting authority every year while the right to toll lies with the contracting authority.


As of financial year 2015, nearly 6,990 kilometers of national highways (awarded by the NHAI and MoRTH) are

being tolled by various private parties under the toll business model:

Summary of toll collection projects bid out by NHAI from 2011-12 till 2014-15

Authorit

y Name

Length of Projects (in kms) Number of Projects Annual Potential Collection (in Rs.

Billion)

2011-

12

2012-

13

2013-

14

2014-

15

2011

-12

2012-

13

2013-

14

2014-15 2011-12 2012-13 2013-14 2014-15

NHAI ~450

0

~480

0

~525

0

~589

0

~75-

80

~84-

88

~98-

102

~102-

104

~21 ~27 ~27 ~33


Nearly 6,500 kilometers of state highways have been invited by various state authorities for tolling under the toll

business model between financial years 2013 and 2015:

Summary of toll collection projects for which bids were invited by key state authorities from 2012-13 till

2014-15

Authority

Name

Length of Projects (in kms) Number of Projects Annual Potential Collection

(in Rs. Billion)

2012-13 2013-14 2014-15 2012-13 2013-14 2014-15 2012-13 2013-14 2014-15

MSRDC 650 300 100 12 5 2 ~0.6 ~3.2 ~4.3

HSRDC 750 - 375 15-17 - 8 ~0.55 - ~1

RSRDC 560 500 1495 10 11 21 ~0.69 ~1.09 ~4.5

RIDCOR 850 - 235 6 - 6 ~1.7 - ~2.3

OBCC 300 - 301 10 - 7 ~0.25 - ~0.9

KRDC - 50 - - 1 0 - ~0.1 0

TNRDC - n.a - - 2 0 - n.a 0

GSRICL - n.a - - 2 0 - n.a 0

85

Total 3110 850 2506 53-55 21 44 ~3.8 ~4.4 ~13.1 Note: States authorities like MSRDC and RSRDC typically provide potential collection for a period of 2-3 years; the same has been

estimated at annual level and represented in aforementioned table. Length of a toll project is estimated to be 50 km for which

information is not available in public domain (in order to arrive at overall state level information). Projects mentioned in the

aforementioned table are on standalone bids basis. Also, the list of projects includes projects reinvited for bidding.

MSRDC: Maharashtra State Road Development Corporation

HSRDC: Haryana State Road & Bridges Development Corporation

RSRDC: Rajasthan State Road Development and Construction Corporation

RIDCOR: Road Infrastructure Development Company of Rajasthan

OBCC: Odisha Bridge & Construction Corporation Limited

KRDC: Karnataka Road Development Corporation Limited

TNRDC: Tamil Nadu Road Development Company

GSRICL: Gujarat Road and Infrastructure Company Limited


Outlook on the OMT and Toll markets

As of financial year 2015, the NHAI and state authorities have provided approximately 20,800 kilometers of road

projects under the two models (there are approximately 5,600 kilometers under the OMT model and 15,200

kilometers under the toll business model). The NHAI and state authorities account for around 45.0% and 55.0% of

the total current market awarded respectively.

OMT / Toll Market from the NHAI

As of December 2015, the NHAI has contracted 2,400 kilometers of its highway projects under the OMT method

and 6,990 kilometers under the tolling method. CRISIL Research expects the NHAI to increase the OMT and tolling

stretch of roads to around 16,500 kilometers by financial year 2019. Further, CRISIL Research expects an

additional 3,700-3,750 kilometers to be added on an OMT basis over the next four years from financial year 2016,

resulting in the total stretch of roads under the OMT model to around 6,100 kilometers by financial year 2019. The

total stretch of roads under the toll business model increased to around 6,990 kilometers in financial year 2015 and

this is expected to increase to over 10,000 kilometers by financial year 2019.

OMT / Toll Market from state highways/road development corporations for states

In financial year 2015, states invited bids for 11,400 kilometers for OMT and tolling methods. According to

CRISIL Research, state authorities are expected to increase the total stretch of roads under the OMT model to

around 5,500 kilometers by financial year 2019. Further, the total stretch of roads under the toll business model is

expected to increase by 1.4 times to around 11,800 kilometers by financial year 2019.

OMT / Toll Market from BOT operators for national highways (indirect)

As of financial year 2015, there were only a few BOT operators who were contracting projects to the private sector

for OMT and toll methods; many of them contracted with small private parties for operation and maintenance only.

CRISIL Research expects an exit in BOT operators from their projects as they face difficult financial situation,

representing an opportunity for new project owners (such as financial investors) to contract operations to the private

sector primarily on an OMT basis. CRISIL Research expects around 4,400 kilometers of potential opportunity that

can be contracted by BOT operators on an OMT basis until financial year 2019.


86

Yield comparisons

The tables below indicate the yield comparison among Indian government bonds, Indian government owned

companies’ bond issuances and certain Indian corporate bond issuances.

Sources: (1) RBI Weekly Statistical Supplement, dated September 30, 2016

(2) Offering circulars of the bonds

Source: Offering circulars of the bonds

87

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

You should read the following discussion of the Project SPVs financial condition and results of operations together

with their audited combined financial statements as of and for the three financial years ended March 31, 2016 and

the three months ended June 30, 2016 and 2015, including the notes thereto and the report thereon (the “Audited

Combined Financial Statements”), which appear elsewhere in the Transaction Update Note. You should also read

“Risk Factors”, which discusses a number of factors and contingencies that could affect the IL&FS Transportation

Trust’s and the Project SPVs financial condition and results of operations. The following discussion relates to the

IL&FS Transportation Trust and the Project SPVs, and, unless otherwise stated, is based on the Audited Combined

Financial Statements. The Audited Combined Financial Statements have been prepared in accordance with Indian

Accounting Standards as prescribed under Section 133 of the Companies Act, 2013 as described in the auditors’

report dated November 22, 2016, which is included in the Transaction Update Note. The Audited Combined

Financial Statements have been prepared on a basis that differs in certain material respects from generally

accepted accounting principles in other jurisdictions, including US GAAP and IFRS. Each Project SPVs’ financial

year ends on March 31 of each year; therefore, all references to a particular financial year are to the twelve-month

period ended March 31 of that year.

Overview

The IL&FS Transportation Trust is an Indian infrastructure investment trust sponsored by ITNL, a leader in the

surface transportation infrastructure business in India with a sizeable BOT project portfolio of approximately

14,699.4 Lane Kilometers. The IL&FS Transportation Trust will acquire a 100.0% equity interest in each of four

road infrastructure companies, HREL, JRPICL, SBHL and NKEL. The initial project portfolio will include eight

road Projects, comprising approximately 1,994.21 Lane Kilometers, located across three states in India, and held

through and operated and maintained by the four Project SPVs.

Map not to scale

*As of September 30, 2016 #The SBHL Concession Agreement provides that, if the actual traffic volume falls short of, or exceeds, the target traffic volume

on specified dates mentioned in the SBHL Concession Agreement, the concession period may be deemed to be extended or

88

reduced, as the case may be, in accordance with the formula specified in the SBHL Concession Agreement. The SBHL Traffic

Report estimates that the traffic volume on the Sikar Bikaner Toll Road may fall short of the targeted traffic volume set out in the

SBHL Concession Agreement on the specified dates by approximately 947 PCUs or by 7.7%. Accordingly, SBHL currently

estimates that the concession period would be extended by approximately 2.75 years. Such extension, however, remains subject

to actual traffic volume tests to be undertaken on the specified dates in accordance with the SBHL Concession Agreement.

Apart from one of the JRPICL Projects and the SBHL Project, which have received their respective provisional completion

certificates, the remaining Projects have received their final completion certificates.

Basis of Presentation

The IL&FS Transportation Trust has not previously been in existence. Once formed and constituted, its initial

portfolio will comprise the four Project SPVs, comprising eight Projects, seven of which are annuity projects and

one of which is a toll project. The IL&FS Transportation Trust will acquire, prior to the proposed fund raising

exercise, the Projects through the acquisition of the entire issued and paid-up share capital of HREL, JRPICL, SBHL

and NKEL held by ITNL. The IL&FS Transportation Trust has prepared the Audited Combined Financial

Statements in order to present the historical combined financial position, results of operations and cash flows of the

Project SPVs, on a combined basis, for each of the financial years 2016, 2015 and 2014 and for each of the three

month periods ended June 30, 2016 and 2015. The Audited Combined Financial Statements may not necessarily

reflect the actual consolidated financial position, results of operations and cash flows of the IL&FS Transportation

Trust and the Project SPVs, nor will they necessarily give an indication of the financial position, results of

operations and cash flows of the IL&FS Transportation Trust and the Project SPVs for the future.

After the completion of the proposed fund raising exercise, there may be certain changes to the IL&FS

Transportation Trust’s cost structure and levels of indebtedness, and these could differ materially from the historical

cost structure and levels of indebtedness presented in the Audited Combined Financial Statements. For example,

there are certain costs, such as the Investment Manager’s fees, the Project Manager’s fees and other costs relating to

the IL&FS Transportation Trust that will be incurred by the IL&FS Transportation Trust going forward that were

not incurred by the Project SPVs historically. See “Prospective Combined Financial Information” for further details.

Net Collections

Following the completion of the proposed fund raising exercise, the Project SPVs will continue to operate on a

standalone basis, with stable and predictable annuities expected from JRPICL, HREL and NKEL, and with toll

collections building from SBHL as long-term traffic patterns evolve. Thus, there are expected to be limited changes

to the IL&FS Transportation Trust’s cash inflows based on its structure at the time of the proposed fund raising

exercise. Further, as the Project SPVs as a whole move beyond their construction stages and into their ongoing

operational phases, it is expected that cash outflows on O&M costs and administrative expenses will also stabilize,

leading to a high level of predictability of net collections before payment of finance costs by the Project SPVs and

payment of dividends to the IL&FS Transportation Trust. To illustrate, the following table shows certain key

elements of each Project SPV’s, and combined, cash inflow and outflow during the three months ended June 30,

2016 and 2015 and the financial years 2016, 2015 and 2014:

Project SPVs1 Particulars For the three months ended

June 30

Financial Year

2016 2015 2016 2015 2014

(In Rs. Million)

JRPICL Annuity receipt 927.00 927.00 3,490.38 2,448.21 2,114.68

Less: O&M cost 49.70 47.33 192.12 158.64 111.06

Less:

Administrative cost 16.28 15.63 68.77 40.64 35.19

Net collections 861.02 864.04 3,229.49 2,248.93 1,968.43

HREL Annuity receipt -2 -2 1,281.60 1,288.53 2,383.113

Less: O&M cost 14.87 14.16 58.10 55.33 52.70

Less:

Administrative cost 2.79 3.05 14.58 16.26 21.355

89

Project SPVs1 Particulars For the three months ended

June 30

Financial Year

2016 2015 2016 2015 2014

Net collections (17.66) (17.21) 1,208.92 1,216.94 2,309.06

NKEL Annuity receipt 505.17 505.17 1,010.34 1,010.34 1,010.34

Less: O&M cost 31.51 40.89 132.56 380.56 112.96

Less: Administrative cost

3.03 2.43 21.034 12.57 10.46

Net collections 470.63 461.85 856.75 617.21 886.92

Total Annuity receipt 1,432.17 1,432.17 5,782.32 4,747.08 5,508.13

Less: O&M cost 96.08 102.38 382.78 594.53 276.72

Less: Administrative cost

22.10 21.11 104.38 69.47 67.00

Net collections 1,313.99 1,308.68 5,295.16 4,083.08 5,164.41

_________ 1. SBHL had not received its final completion certificate as of June 30, 2016 and, as a result, is omitted from this table.

2. HREL’s annuity receipts was zero in the three months ended June 30, 2015 and 2016 due to the timing of annuity accruals under the relevant concession agreements.

3. HREL’s annuity receipt for the financial year 2014 included additional annuity amounts relating to a bonus payment for completion of construction and partial year annuity for

the financial year 2013, each paid by the concessioning authority in the financial year 2014.

4. The increase in administrative costs at NKEL for the financial year 2016 compared to the financial year 2015 was primarily due to NKEL incurring corporate social

responsibility expenses during the financial year 2016 of Rs. 8.37 million compared to Rs. 0.92 million for the financial year 2015.

5. The decrease in administrative costs at HREL for the financial year 2015 compared to the financial year 2014 was primarily due to HREL expensing insurance premiums meant

to be paid during the financial year 2013 in the financial year 2014, which was not reflected in the financial year 2015.

Generally (apart from note (3) above), annuity receipts have varied from financial year to financial year primarily as

a result of the timing of completion of portions of the JRPICL Projects and the timing, under the concession

agreements, for the payment of annuities. O&M cost variances relate principally to the timing of completion of

JRPICL Projects (the RPR II Project which achieved COD on April 30, 2014 and the CKC Project which received

its provisional completion certificate on November 30, 2014) and the increases in O&M costs as per the various

O&M agreements. Administrative cost increases relate generally to the timing of completion of projects and the

corresponding shift from capitalizing such costs to including them as expenses on the statements of profit and loss.

Critical Accounting Policies and Estimates

Accounting for rights under concession agreements and recognition of revenue

General

The Audited Combined Financial Statements have been prepared in accordance with the Indian Accounting

Standards notified under the Companies (Indian Accounting Standards) Rules, 2015 (“Ind AS”). Under Ind AS,

with respect to service concession arrangements (“SCAs”), revenue and costs are allocated between construction

services and O&M services, and are accounted for separately. Consideration received or receivable is allocated by

reference to the relative fair value of services delivered when the amounts are separately identifiable. The

infrastructure used pursuant to a concession agreement is classified as an intangible asset or a financial asset,

depending on the nature of the payment entitlements established in the concession agreement.

Annuity Projects

When the amount of consideration for the provision of public services is substantially fixed by a contract, such as

fixed annuities under annuity based concession agreements, the concessionaire recognizes the consideration for

construction services at the fair value of construction costs incurred. The fair value of the construction costs and

finance income accrued on the said cost (based on the effective interest rate of the project) during the construction

period, is recognized as a financial asset and is classified as Receivables against Service Concession Arrangements

in the balance sheet. Correspondingly, interest on borrowings during the construction period is charged as an

expense in the statement of profit and loss.

90

The cash flows from the financial asset commence from the provisional or final commercial operation date, as the

case may be, as certified by the concessioning authority. The annuity received is distributed between O&M

revenue, overlay revenue, finance income calculated using the effective interest rate method, and the balance

amount is accounted towards recovery of the Receivable against Service Concession Arrangements.

Finance income is calculated using the effective interest rate method from the financial asset and is recognized in the

statement of profit and loss in each period from the year in which construction activities start.

Income from O&M services and overlay services are recognized as and when the services are rendered.

The effective interest rate is the rate of interest which ensures that the closing balance of a financial asset after due

adjustments every year of the residual annuity amount (annuity amount reduced by O&M income and overlay

income and finance income) is zero at the end of the concession period.

Toll Projects

When a concessionaire has a right to charge the users of the infrastructure facility, the concessionaire recognizes the

consideration for construction services at its fair value, as an intangible asset. Such intangible asset is capitalized

until the project is complete in all respects and it receives a final completion certificate from the concessioning

authority.

Any provisional completion certificate is considered an intermediate means through which tolls may be collected to

compensate for cost recovery during the construction period. During the period the asset is being constructed, the

construction costs incurred, as on every balance sheet date, is reflected as an intangible asset under development on

the balance sheet. Toll revenue collected after receipt of the provisional completion certificate is deducted from the

cost of construction until the receipt of the final completion certificate or when the complete asset is substantially

ready to be put to use. Similarly, any non-refundable viability gap funding grants received from the concessioning

authority during the construction period is adjusted from the value of the intangible asset under development.

Once the project is fully operational and recognized as an intangible asset, the asset will be amortized over the

period of the concession, using the actual traffic count for a given period divided by total projected traffic count,

taking into account the estimated period of commercial operation of the project which coincides with the concession

period.

Toll income is recognized in the period of collection of tolls which coincides with the usage of public service. As the

SBHL Project has only received its provisional completion certificate, and it remains to be fully completed, toll

collected by SBHL have been deducted from the value of the intangible assets under development.

O&M costs and overlay costs are recognized in the statement of profit and loss as and when it is incurred.

Contractual obligation to restore the infrastructure to a specified level of serviceability

The Project SPVs have contractual obligations to maintain the Projects’ infrastructure to a specified level of

serviceability or to restore the Projects’ infrastructure to a specified condition before being handed over to the

concessioning authorities. These obligations are called overlay obligations. Such obligations are measured at the

best estimate of the expenditures that would be required to settle the obligations at the balance sheet date.

For toll based projects, the timing and amount of such costs are estimated and recognized on a discounted basis by

charging costs to revenue per the units of usage method, based on the number of vehicles expected to use the project

facility, over the period at the end of which the overlay is estimated to be carried out based on a technical evaluation

to be undertaken by independent experts.

For annuity based projects, such costs are recognized in the periods in which such costs are actually incurred.

Borrowing costs

91

For annuity based projects, borrowing costs attributable to construction of the infrastructure are charged to the

statement of profit and loss in the period in which such costs are incurred.

For toll based projects, borrowing costs attributable to the construction of infrastructure assets are capitalized up to

the date of receipt of the final completion certificate from the concessioning authority. All subsequent borrowing

costs are charged to the statement of profit and loss.

Amortization of intangible asset under the concession agreements

The intangible asset is amortized over period of the concession, using the actual traffic count for a given period

divided by total projected traffic count, taking into account the estimated period of commercial operation of the

project which coincides with the concession period. This is done to reflect the pattern in which the asset’s economic

benefit would be consumed.

Taxation

Current Tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from “profit before tax” as

reported in the statement of profit and loss because of items of income or expense that are taxable or deductible in

other years and items that are never taxable or deductible. The Project SPVs’ current tax is calculated using tax rates

that have been enacted or substantively enacted by the end of the reporting period.

The provision for tax is taken for each Project SPV on the basis of the standalone financial statements prepared

under Ind AS by that entity and is aggregated for the purpose of the Audited Combined Financial Statements.

Deferred Tax

Deferred tax is recognized on the temporary differences between the carrying amounts of assets and liabilities in the

financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax

liabilities are generally recognized for all taxable temporary differences. Deferred tax assets (including unused tax

credits such as minimum alternate tax (“MAT”) credit and unused tax losses such as carried forward business loss

and unabsorbed depreciation) are generally recognized for all deductible temporary differences to the extent that it is

probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial

recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the

taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent

that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be

recovered.

92

Significant Factors Affecting the IL&FS Transportation Trust’s Cash Flows and Results of Operations

Annuity and tolls are dependent on the terms of the concession agreements

As of the completion of the proposed fund raising exercise, the IL&FS Transportation Trust will have an

initial portfolio of eight revenue generating road projects under the four Project SPVs, out of which seven

are annuity projects and one under construction toll project. In an annuity project, the concessionaire relies on

annuity payments that are payable at regular intervals by the concessioning authority after the project achieves its

commercial operation date. As a result, annuity amounts are largely a function of periodic payments made by the

concessioning authorities in compliance with the terms of the concession agreements and the Project SPVs

complying with the specifications of assured availability contained in the concession agreements, upon compliance

of which the annuity payments are not liable to be reduced. In a toll project, the concessionaire is granted the right to collect user fees which are fixed by the concessioning

authority in accordance with applicable law over the concession period. Toll collection terms for the SBHL Project

provide that while the concessioning authority may modify the toll rates, SBHL has no ability to modify such rates.

As a result, the amount of tolls collected from the SBHL Project is a function of traffic volume and the toll rates

levied on users pursuant to the concessioning authority’s determinations (which is calculated on the basis of a pre-

determined base rate, the distance travelled, infrastructure used and is subject to increases to reflect increases in the

whole sale price index). Traffic volume on the SBHL Project will likely fluctuate from year to year due to factors

that are beyond the control of SBHL. Any significant decrease in traffic volume could have an adverse effect on the

business and results of operations of SBHL and any significant increase in traffic volume will also have a

corresponding positive effect on the business and results of operations of SBHL.

O&M costs are dependent on the terms of the O&M agreements

The Project SPVs have entered into O&M agreements with ITNL for their respective Projects. The O&M

agreements with ITNL provide that ITNL will be paid a pre-determined fee for its services which includes routine

and non-material maintenance of the Projects, and periodic and material maintenance, which involve the repair of

wear and tear of roads including overlaying the surface of the roads. Any expenses over and above the pre-

determined fee will be borne by ITNL. This cost protection to the Projects SPVs will continue even if ITNL is

replaced by the Project SPVs as the O&M operator due to a breach by ITNL of its obligations under the O&M

agreements.

The Project SPVs are entitled to enter into O&M contracts with third parties if more favorable rates can be achieved

or if ITNL were to be in breach of its obligations under the O&M agreements. If a Project SPV terminates its O&M

agreement with ITNL due to a breach by ITNL of its obligations under the O&M agreement, ITNL will indemnify

the Project SPV with respect to claims and expenses incurred by the Project SPV under the relevant concession

agreement resulting from such breach.

As a result, the total expenditure with respect to each project may be predicted with a degree of certainty, and the

fixed annuity concession agreements of HREL, JRPICL and NKEL provide for predictable operating profitability

and cash flows.

For further details on the terms of the concession agreements and maintenance requirements for each of the Projects,

see “Business”.

Tax benefits for road infrastructure sector in India

Each of the Project SPVs enjoys certain benefits under Section 80IA of the Income Tax Act, 1961, as amended. As a

result of these benefits, the Project SPVs are subject to relatively low tax liabilities. The benefits to the Projects

SPVs are entitled to expire at various points of time. Any expiry or termination of these tax benefits will increase the

IL&FS Transportation Trust’s tax expenses, thereby adversely affecting the IL&FS Transportation Trust’s results of

operations and cash flow.

93

Competition

The IL&FS Transportation Trust faces competition from other road operators, financial investors and potentially

from other InvITs, in acquiring lucrative concessions for operational and future projects. In respect of new and

eligible acquisition opportunities, the IL&FS Transportation Trust will likely remain largely reliant on the Sponsor

and its subsidiaries, which face competition from both domestic and international entities in the roads and highways

infrastructure sector, as most of the contracts awarded by the Government of India and state governments are

awarded on a competitive bidding basis and subject to satisfaction of other prescribed pre-qualification criteria.

Further, as all toll revenues depend on toll receipts and are affected by changes in traffic volumes, the amount of

revenue generated by SBHL, as well as any future toll projects acquired by the IL&FS Transportation Trust, will

depend on a number of factors which can influence the level of traffic volume, including competition from other

roads that operate in the same area, as well as from other modes of transportation.

Strategy of acquisitions by the IL&FS Transportation Trust on the basis of the ROFO Deed with the Sponsor

The Investment Manager intends to develop and expand the IL&FS Transportation Trust’s portfolio of projects by

capitalizing on opportunities provided by the Sponsor to undertake strategic acquisitions of completed road assets as

well as assets that may be under construction. See “Business – Strategy – Growth from acquisitions”. Towards this

objective, the IL&FS Transportation Trust intends to enter into a ROFO Deed with the Sponsor, whereby the IL&FS

Transportation Trust will be entitled to the acquisition, on a ROFO basis, of certain of the Sponsor’s road

infrastructure projects subject to terms mentioned in the ROFO Deed. Any acquisitions will have a direct impact on

the revenue growth of the IL&FS Transportation Trust as well as having a corresponding increase in any operating

and financial expenses that the IL&FS Transportation Trust will incur.

Any acquisitions in the future will be financed through the IL&FS Transportation Trust incurring additional debt or

through the issue of fresh Units.

Costs associated with the IL&FS Transportation Trust’s expenses

The Audited Combined Financial Statements do not reflect certain costs that the IL&FS Transportation Trust will

incur going forward such as the Investment Manager’s fees, the Project Manager’s fees and other related costs

relating to the operations of the IL&FS Transportation Trust. After the Listing Date, the IL&FS Transportation Trust

will incur these costs as specified in the agreements that the IL&FS Transportation Trust has entered into with such

parties.

Pursuant to the terms of the Trust Deed establishing the IL&FS Transportation Trust, the Trustee is entitled to

receive annual trusteeship fees which will vary from year to year. The IL&FS Transportation Trust has also entered

into an investment management agreement with the Investment Manager, pursuant to which the Investment Manager

is entitled to receive certain sums on an annual basis as consideration for its services. Similarly, the IL&FS

Transportation Trust will enter into an agreement with the Project Manager whereby the Project Manager will be

entitled to a certain fee on an annual basis.

In addition to the above costs, the IL&FS Transportation Trust will be required to incur other recurring expenses

such as audit fees, tax consultancy fees, legal fees, valuation costs and expenses relating to investor communications

and other costs.

These and other costs will be reflected in the statement of profit and loss going forward and will have an effect on

the profitability of the IL&FS Transportation Trust. See, “Prospective Combined Financial Information” for an

indication of how the Investment Manager anticipates these costs to affect the profitability of the IL&FS

Transportation Trust going forward.

Economic conditions in the areas where the Project SPVs operate

94

For toll based road projects the performance and growth of the project is dependent on the health and sustained

growth of the economies of the areas in which the project is located. As a result, any economic growth in Rajasthan

and nearby areas, particularly around the SBHL Project will, possibly, result in an increase in traffic on the SBHL

Project. Similarly, any slowdown or perceived slowdown, due to external or internal reasons, could adversely affect

SBHL’s revenues and, as a result, the IL&FS Transportation Trust’s results of operations.

Dependence on support from governmental entities

Any significant changes in a particular government’s policy for the road infrastructure sector could have a

significant effect on the IL&FS Transportation Trust’s revenues, expenditure and growth prospects. The Project

SPVs’ results of operations are significantly affected by budgetary allocations made by the various central and state

government agencies for the infrastructure sector as well as funding provided by international and multilateral

development finance institutions for road infrastructure projects.

95

Results of Operations

The following table sets forth selected financial data from the Audited Combined Financial Statements, the components of which are also expressed as a

percentage of total income for the periods indicated:

For the three months ended Financial Year

June 30

2016

June 30

2015

2016 2015 2014

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

Income:

Revenue from Operations ………..

1,002.79 95.2 1,500.84 96.6

5,638.34 85.5 7,064.87 97.4 8,735.84 98.3

Other income

…………… 50.48 4.8 52.16 3.4

958.41 14.5 189.63 2.6 152.93 1.7

Total income

…………… 1,053.27 100.0 1,553.00 100.0

6,596.75 100.0 7,254.50 100.0 8,888.77 100.0

Expenses:

Construction Costs …………….

175.03 16.6 602.08 38.8

2,402.34 36.4 3,369.88 46.5 5,131.23 57.7

Operating expenses

…………. 96.07 9.1 102.38 6.6

382.79 5.8 594.54 8.2 276.72 3.1

Finance costs ………………

1,045.55 99.3 1,091.10 70.3

4,303.32 65.2 4,269.37 58.9 4,010.38 45.1

Other

expenses*………… 22.92 2.2 21.84 1.4

107.76 1.6 72.18 1.0 69.55 0.8

Total expenses

………... 1,339.57 127.2 1,817.40 117.0

7,196.21 109.1 8,305.97 114.5 9,487.88 106.7

Profit/(loss) before

tax ……………….. (286.30) (27.2) (264.40) (17.0)

(599.46) (9.1) (1,051.47) (14.5) (599.11) (6.7)

Less: Tax expense

Current tax

…………… 19.00 1.8 19.00 1.2

74.59 1.1 73.81 1.0 53.60 0.6

Tax provision

relating to earlier period not required

- - - -

- - (0.0) (0.0) - -

96

For the three months ended Financial Year

June 30

2016

June 30

2015

2016 2015 2014

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

(In Rs.

Million )

% of

Total

Income

………

Deferred tax credit ………..

- - - -

- - (281.88) (3.9) (130.40) (1.5)

Total tax ……….. 19.00 1.8 19.00 1.2

74.59 1.1 (208.07) (2.9) (76.80) (0.9)

Loss for the period

..………… (305.30) (29.0) (283.40) (18.2)

(674.05) (10.2) (843.40) (11.6) (522.31) (5.9)

*Other expenses includes employee benefit expenses

97

Description of the major components of income and expenses items

Income

Total income consists of revenue from operations and other income.

Revenue from operations

The concession agreements, pursuant to which the Project SPVs have concession rights over the Projects, are

public private-agreements for periods specified in the concession arrangements and include services such as

construction, upgradation and restoration of infrastructure and future services associated with the operations and

maintenance or major maintenance of the assets during the concession period.

The annuities received are allocated towards O&M revenue and periodic maintenance (overlay) revenue and

finance income calculated using the effective interest rate method and are recognized in the statement of profit

and loss. The balance amount of annuities is appropriated towards recovery from the Receivable against Service

Concession Arrangements.

As a result, revenue from operations for the annuity projects (NKEL, JRPICL and HREL) comprises income

from O&M and periodic maintenance services (overlay) and finance income which are a part of the annuity

received. As SBHL has received its provisional completion certificate, the toll revenue collected from the SBHL

Project is reduced from the cost of construction. Once the SBHL Project is fully complete and upon receipt of a

final completion certificate, revenue from operations will also include toll receipts. Revenue from operations

also includes construction income generated by the Project SPVs during the period construction activity is

undertaken.

Revenue from operations was Rs. 1,002.79 million and Rs. 1,500.84 million and represented 95.2% and 96.6%

of total income for the three months ended June 30, 2016 and 2015, respectively, and was Rs. 5,638.34 million,

Rs. 7,064.87 million and Rs. 8,735.84 million and represented 85.5%, 97.4% and 98.3% of total income for the

financial years 2016, 2015 and 2014, respectively.

The major components of revenue from operations are as set out below:

Construction income. Construction income is income generated by the Project SPVs for undertaking the

development of the Projects in accordance with the terms of the concession agreements. Construction income

comprises construction costs, other than interest during construction, incurred by the Project SPVs for the

development of the Projects and the construction margin, which together are the fair value of the construction

services. Construction income is matched by construction costs, resulting in construction margin to the Project

SPVs. Construction income with respect to the Project SPVs is expected to decrease going forward as

construction activity will decline as the Projects become commercially operational.

Construction income was Rs. 189.90 million and Rs. 668.30 million and represented 18.0% and 43.0% of total

income for the three months ended June 30, 2016 and 2015, respectively, and was Rs. 2,637.99 million, Rs.

3,687.04 million and Rs. 5,592.86 million and represented 40.0%, 50.8% and 62.9% of total income for the


During the construction period of a project, the concessioning authority may ask the concessionaire to carry out

utility shifting work (which is incidental to the construction of the road and typically involves the shifting of

utilities that are located at the construction site). Revenue from such utility shifting is generally matched against

the cost incurred on such activities and is reflected as reimbursement of costs by the concessioning authority.

The concessioning authority may also award the concessionaire additional work, which will be separately paid

for. Revenue from such change in the scope of the contract forms part of the concessionaire’s operating revenue.

This is not generally substantial compared to total revenue.

Finance income. Finance income comprises a significant portion of the overall revenue and represents interest

income recognized on the financial asset reflected in the balance sheet. Finance income is part of annuity

received and is calculated on the basis of the effective interest rate method.

Finance income was Rs. 708.64 million and Rs. 722.91 million and represented 67.3% and 46.5% of total

income for the three months ended June 30, 2016 and 2015, respectively, and was Rs. 2,591.63 million, Rs.

98

2,737.76 million and Rs. 2,849.83 million and represented 39.3%, 37.7% and 32.1% of total income for the


O&M income. O&M income is income generated by the Project SPVs (other than SBHL) for undertaking the

O&M activities relating to the Projects in accordance with the terms of the concession agreements. O&M

income comprises O&M costs incurred by the Project SPVs (other than SBHL) for the operation and

maintenance of the Projects and the O&M margin, which together are the fair value of the O&M services.

O&M income was Rs. 104.25 million and Rs. 98.74 million and represented 9.9% and 6.4% of total income for

the three months ended June 30, 2016 and 2015, respectively, and was Rs. 397.83 million, Rs. 352.36 million

and Rs. 293.15 million and represented 6.0%, 4.9% and 3.3% of total income for the financial years 2016, 2015

and 2014, respectively.

Periodic maintenance (overlay) income. Periodic maintenance income comprises costs incurred by the Project

SPVs (other than SBHL) for undertaking periodic maintenance services of the Projects and the periodic

maintenance margin, which is the fair value of the periodic maintenance services. Depending on the terms of the

contract, periodic maintenance is required to be carried out either every fixed period of five years or based on

the actual physical condition of the road. As a result, periodic maintenance income may not be earned every

financial year by each of the Project SPVs.

Under the terms of the NKEL Concession Agreement, NKEL is required to undertake periodic maintenance

activities over the NKEL Project once every five years, which entails the repair of the highway, including

overlaying the surface of the highway, if required. As a result, periodic maintenance income for the three

financial years 2016, 2015 and 2014 was income generated by NKEL for undertaking periodic maintenance

activities relating to the NKEL Project in accordance with the terms of the NKEL Concession Agreement.

Periodic maintenance income was zero and Rs. 10.89 million and represented zero percent and 0.7% of total

income for the three months ended June 30, 2016 and 2015, respectively, and was Rs. 10.89 million, Rs. 287.71

million and zero and represented 0.2%, 4.0% and zero percent of total income for the financial years 2016, 2015

and 2014, respectively.

Other income

Other income comprises interest income and other non-operating income. Other income was Rs. 50.48 million

and Rs. 52.16 million and represented 4.8% and 3.4% of total income for the three months ended June 30, 2016

and 2015, respectively, and was Rs. 958.41 million, Rs. 189.63 million and Rs. 152.93 million and represented

14.5%, 2.6% and 1.7% of total income for the financial years 2016, 2015 and 2014, respectively.

Interest income. Interest income is primarily interest income generated from bank deposits and loans to related

parties. Interest income was Rs. 50.22 million and Rs. 52.16 million and represented 4.8% and 3.4% of total

income for the three months ended June 30, 2016 and 2015, respectively, and was Rs. 194.12 million, Rs.

176.34 million and Rs. 152.91 million and represented 2.9%, 2.4% and 1.7% of total income for the financial

years 2016, 2015 and 2014, respectively.

Other non-operating income. Other non-operating income was primarily a one-time claim by JRPICL receivable

from the concessioning authority towards a cost overrun on account of delays by the concessioning authority in

handing over land for the RPR II Project which was paid by the concessioning authority during the financial

year 2016. Other non-operating income was Rs. 764.29 million and represented 11.6% of total income for the

financial year 2016.

Expenses

Construction costs. Construction costs are the costs incurred by the Project SPVs for undertaking the

development of the Projects in accordance with the terms of the concession agreements. Construction costs were

Rs. 175.03 million and Rs. 602.08 million and represented 16.6% and 38.8% of total income for the three

months ended June 30, 2016 and 2015, respectively, and were Rs. 2,402.34 million, Rs. 3,369.88 million and

Rs. 5,131.23 million and represented 36.4%, 46.5% and 57.7% of total income for the financial years 2016,

2015 and 2014, respectively. Construction costs with respect to the Project SPVs is expected to decrease going

forward as construction activity will decline as the Projects become commercially operational.

99

Operating expenses. Operating expenses primarily comprise O&M expenses, periodic and major maintenance

expenses and independent engineer’s fees. Operating expenses were Rs. 96.07 million and Rs. 102.38 million

and represented 9.1% and 6.6% of total income for the three months ended June 30, 2016 and 2015,

respectively, and were Rs. 382.79 million, Rs. 594.54 million and Rs. 276.72 million and represented 5.8%,

8.2% and 3.1% of total income for the financial years 2016, 2015 and 2014, respectively.

Finance costs. Finance costs primarily comprise interest on bank loans, interest on debentures and other

borrowing costs resulting from the amortization of transaction costs in relation to loans entered into. Finance

costs do not reflect the finance costs incurred by SBHL, which has not yet received its final completion

certificate, as a result of which, its finance costs are capitalized. Finance costs were Rs. 1,045.55 million and Rs.

1,091.10 million and represented 99.3% and 70.3% of total income for the three months ended June 30, 2016

and 2015, respectively, and were 4,303.32 million, Rs. 4,269.37 million and Rs. 4,010.38 million and

represented 65.2%, 58.9% and 45.1% of total income for the financial years 2016, 2015 and 2014, respectively.

Other expenses (including employee benefit expenses). Other expenses primarily comprise administrative costs

such as legal and consultation fees, travelling and conveyance expenses, repairs and maintenance expenses,

directors’ sitting fees, printing and stationery expenses, the Project SPVs’ statutory audit fees, agency fees,

corporate and social responsibility expenses and depreciation and amortization expense. Depreciation and

amortization expense comprises (i) depreciation of equipment, plants and furniture, office equipment, vehicles;

and (ii) amortization of intangible assets, including software. In addition, once SBHL achieves final completion,

these expenses will also reflect the amortization of the intangible road asset of the SBHL Project. Other

expenses were Rs. 22.92 million and Rs. 21.84 million and represented 2.2% and 1.4% of total income for the

three months ended June 30, 2016 and 2015, respectively, and were Rs. 107.76 million, Rs. 72.18 million and

Rs. 69.55 million and represented 1.6%, 1.0% and 0.8% of total income for the financial years 2016, 2015 and

2014, respectively.

Tax expense. Tax expense primarily comprises current tax and deferred tax.

Three months ended June 30, 2016 compared to the three months ended June 30, 2015

Income

Total income decreased by 32.2% to Rs. 1,053.27 million for the three months ended June 30, 2016 from Rs.

1,553.00 million for the three months ended June 30, 2015, due to decreases in revenue from operations and

other income.

Revenue from operations. Revenue from operations decreased by 33.2% to Rs. 1,002.79 million for the three

months ended June 30, 2016 from Rs. 1,500.84 million for the three months ended June 30, 2015, primarily due

to a decrease in construction income and periodic maintenance income. However, O&M income and finance

income increased for the three months ended June 30, 2016 compared to the three months ended June 30, 2015.

Construction income. Construction income decreased by Rs. 478.40 million or 71.6% to Rs. 189.90 million for

the three months ended June 30, 2016 from Rs. 668.30 million for the three months ended June 30, 2015,

primarily due to a decrease in construction income at SBHL by Rs. 484.88 million to Rs. 182.50 million for the

three months ended June 30, 2016 from Rs. 667.38 million for the three months ended June 30, 2015 as the

SBHL Project was nearing completion. The decrease was partially offset by an increase in construction income

at JRPICL by Rs. 6.48 million to Rs. 7.40 million for the three months ended June 30, 2016 from Rs. 0.92

million for the three months ended June 30, 2015 on account of increased construction activity in the CKC

Project.

O&M income. O&M income increased by Rs. 5.51 million or 5.6% to Rs. 104.25 million for the three months

ended June 30, 2016 from Rs. 98.74 million for the three months ended June 30, 2015, primarily due to an

increase in O&M income from JRPICL by Rs. 2.75 million or 5.4% to Rs. 53.95 million for the three months

ended June 30, 2016 from Rs. 51.19 million for the three months ended June 30, 2015, an increase in O&M

income from HREL by Rs. 0.92 million or 6.1% to Rs. 15.91 million for the three months ended June 30, 2016

from Rs. 14.99 million for the three months ended June 30, 2015 and an increase in O&M income from NKEL

by Rs. 1.85 million or 5.7% to Rs. 34.40 million for the three months ended June 30, 2016 from Rs. 32.55

million for the three months ended June 30, 2015.

100

Periodic maintenance income. There was no periodic maintenance income for the three months ended June 30,

2016, compared to periodic maintenance income of Rs. 10.89 million for the three months ended June 30, 2015.

None of the Project SPVs undertook any periodic maintenance for the three months ended June 30, 2016 while

for the three months ended June 30, 2015, NKEL undertook periodic maintenance on the NKEL Project in

accordance with the terms of the NKEL Concession Agreement.

Finance income. Finance income decreased by Rs. 14.27 million or 2.0% to Rs. 708.64 million for the three

months ended June 30, 2016 from Rs. 722.91 million for the three months ended June 30, 2015, primarily due to

an increase in the value of the financial asset due to construction and periodic maintenance.

Other income. Other income decreased by Rs. 1.68 million or 3.2% to Rs. 50.48 million for the three months

ended June 30, 2016 from Rs. 52.16 million for the three months ended June 30, 2015, primarily due to a

decrease in interest income by Rs. 1.94 million or 3.7% to Rs. 50.22 million for the three months ended June 30,

2016 from Rs. 52.16 million for the three months ended June 30, 2015.

Expenses

Total expenses decreased by Rs. 477.83 million or 26.3% to Rs. 1,339.57 million for the three months ended

June 30, 2016 from Rs. 1,817.40 million for the three months ended June 30, 2015, primarily due to a decrease

in construction costs and operating expenses which was partially offset by an increase in other expenses.

Construction costs. Construction costs decreased by Rs. 427.05 million or 70.9% to Rs. 175.03 million for the

three months ended June 30, 2016 from Rs. 602.08 million for the three months ended June 30, 2015. This

decrease was primarily due to a decrease in construction costs at SBHL by Rs. 433.00 million or 72.0% to Rs.

168.25 million for the three months ended June 30, 2016 from Rs. 601.24 million for the three months ended

June 30, 2015 as the SBHL Project was nearing completion. This decrease was partially offset by an increase in

the construction costs at JRPICL by Rs. 5.95 million to Rs. 6.78 million for the three months ended June 30,

2016 from Rs. 0.83 million for the three months ended June 30, 2015 on account of increased construction

activity at the CKC Project.

Operating expenses. Operating expenses decreased by Rs. 6.31 million or 6.2% to Rs. 96.07 million for the

three months ended June 30, 2016 from Rs. 102.38 million for the three months ended June 30, 2015, primarily

due to a no periodic maintenance expenses for the three months ended June 30, 2016 from Rs. 9.88 million

incurred for the three months ended June 30, 2016 on the NKEL Project. This decrease was partially offset by

an increase in O&M expenses by Rs. 3.42 million or 3.8% to Rs. 94.44 million for the three months ended June

30, 2016 from Rs. 91.02 million for the three months ended June 30, 2015 on JRPICL, HREL and NKEL.

Finance costs. Finance costs decreased by Rs. 45.55 million or 4.2% to Rs. 1,045.55 million for the three

months ended June 30, 2016 from Rs. 1,091.10 million for the three months ended June 30, 2015, primarily due

to a decrease in interest on loans on account of principal repayments and a decrease in interest on outstanding

non-convertible debentures issued to third parties. Finance costs also reflected other borrowing costs as a result

of amortization of transaction costs which decreased by 58.5% to Rs. 13.39 million for the three months ended

June 30, 2016 from Rs. 32.30 million for the three months ended June 30, 2015.

Other expenses (including employee benefit expenses). Other expenses increased by Rs. 1.08 million or 5.0% to

Rs. 22.92 million for the three months ended June 30, 2016 from Rs. 21.84 million for the three months ended

June 30, 2015, primarily due to an increase in legal and consultation fees by 11.6% to Rs. 15.14 million for the

three months ended June 30, 2016 from Rs. 13.57 million for the three months ended June 30, 2015.

Tax expense

Total tax expense was Rs. 19.00 million for the three months ended June 30, 2016 and for the three months

ended June 30, 2015, which was primarily due to current tax of Rs. 19.00 million for both the three months

ended June 30, 2016 and 2015.

Loss for the Period

Loss for the period increased by Rs. 21.90 or 7.7% to Rs. 305.30 million for the three months ended June 30,

2016 from Rs. 283.40 million for the three months ended June 30, 2015 for the reasons stated above.

101

Financial year 2016 compared to financial year 2015

Income

Total income decreased by Rs. 657.75 million or 9.1% to Rs. 6,596.75 million for the financial year 2016 from

Rs. 7,254.50 million for the financial year 2015, primarily due to a decrease in revenue from operations which

was partially offset by an increase in other income.

Revenue from operations. Revenue from operations decreased by Rs. 1,426.53 or 20.2% to Rs. 5,638.34 million

for the financial year 2016 from Rs. 7,064.87 million for the financial year 2015, primarily due to a decrease in

construction income, periodic maintenance income and finance income. However, O&M income increased for

the financial year 2016 compared to the financial year 2015.

Construction income. Construction income decreased by Rs. 1,049.05 million or 28.5% to Rs. 2,637.99 million

for the financial year 2016 from Rs. 3,687.04 million for the financial year 2015. This decrease was primarily

due to a decrease in construction income at JRPICL to Rs. 36.56 million for the financial year 2016 from Rs.

700.89 million for the financial year 2015 on account of a decrease in construction activity at the RPR II Project

and the CKC Project which were commissioned in the financial year 2015 and a decrease in construction

income at HREL to Rs. 94.28 million for the financial year 2016 from Rs. 601.84 million for the financial year

2015 on account of a decrease in construction activity at the HREL Project in the financial year 2016 compared

to the financial year 2015. These decreases were partially offset by an increase in construction income at SBHL

by Rs. 122.83 million to Rs. 2,507.15 for the financial year 2016 from Rs. 2,384.31 for the financial year 2015

due to an increase in construction costs and the purchase of toll equipment.

O&M income. O&M income increased by Rs. 45.47 million or 12.9% to Rs. 397.83 million for the financial

year 2016 from Rs. 352.36 million for the financial year 2015. This was primarily due to an increase in O&M

income from JRPICL by Rs. 36.09 million or 21.2% to Rs. 206.11 million for the financial year 2016 from Rs.

170.02 million for the financial year 2015, an increase in O&M income from HREL by Rs. 2.93 million or 5.0%

to Rs. 61.51 million for the financial year 2016 from Rs. 58.58 million for the financial year 2015 and an

increase in O&M income from NKEL by Rs. 6.45 million or 5.2% to Rs. 130.21 million for the financial year

2016 from Rs. 123.76 million for the financial year 2015.

Periodic maintenance income. Periodic maintenance income decreased to Rs. 10.89 million for the financial

year 2016 from Rs. 287.71 million for the financial year 2015, as a major portion of periodic maintenance work

at the NKEL Project was completed during the financial year 2016. None of JRPICL, HREL or SBHL incurred

any periodic maintenance income during these periods.

Finance income. Finance income decreased by Rs. 146.13 million or 5.3% to Rs. 2,591.63 million for the

financial year 2016 from Rs. 2,737.76 million for the financial year 2015, primarily due to decrease in the value

of the financial asset on account of realization of annuities.

Other income. Other income increased to Rs. 958.41 million for the financial year 2016 from Rs. 189.63 million

for the financial year 2015, primarily due to an increase in other non-operating income to Rs. 764.29 million for

the financial year 2016 from Rs. 13.29 million for the financial year 2015 as a result of a one-off claim of Rs.

762.84 million, recognized in the financial year 2016, receivable by JRPICL from the concessioning authority

towards a cost overrun on interest during construction period on account of delays by the concessioning

authority in handing over land for the RPR II Project and an increase in interest income by 10.1% to Rs. 194.12

million for the financial year 2016 from Rs. 176.34 million for the financial year 2015.

Expenses

Total expenses decreased by Rs. 1,109.76 million or 13.4% to Rs. 7,196.21 million for the financial year 2016

from Rs. 8,305.97 million for the financial year 2015, primarily due to a decrease in construction costs and

operating expenses which was partially offset by increases in other expenses.

Construction costs. Construction costs decreased by Rs. 967.54 million or 28.7% to Rs. 2,402.34 million for the

financial year 2016 from Rs. 3,369.88 million for the financial year 2015. This decrease was primarily due to a

decrease in construction costs at JRPICL by Rs. 620.07 million i.e 94.9% to Rs. 33.33 million for the financial

year 2016 from Rs. 653.39 million for the financial year 2015 on account of the RPR II Project and the CKC

Project being commissioned during the financial year 2015 and a decrease in the construction costs at HREL by

102

Rs. 479.41 million or 84.3% to Rs. 89.05 million for the financial year 2016 from Rs. 568.46 million for the

financial year 2015 on account of a decrease in construction activity at the HREL Project. This decrease was

partially offset by an increase in construction costs at SBHL by Rs. 131.94 million or 6.1% to Rs. 2,279.97

million for the financial year 2016 from Rs. 2,148.03 million for the financial year 2015.

Operating expenses. Operating expenses decreased by Rs. 211.75 million or 35.6% to Rs. 382.79 million for the

financial year 2016 from Rs. 594.54 million for the financial year 2015. This was primarily due to a decrease in

periodic maintenance expenses to Rs. 9.88 million for the financial year 2016 from Rs. 261.04 million for the

financial year 2015 as a major portion of periodic maintenance work at the NKEL Project was completed during

the financial year 2016 and a decrease in independent engineer fees by 37.1% to Rs. 4.55 million for the

financial year 2016 from Rs. 7.23 million for the financial year 2015 which was attributable to NKEL. This

decrease in expenses was partially offset by an increase in O&M expenses by Rs. 42.09 million or 12.9% to Rs.

368.36 million for the financial year 2016 from Rs. 326.27 million for the financial year 2015 due to increases

in O&M expenses at JRPICL, HREL and NKEL.

Finance costs. Finance costs increased by Rs. 33.95 million or 0.8% to Rs. 4,303.32 million for the financial

year 2016 from Rs. 4,269.37 million for the financial year 2015. This was primarily due to an increase in

interest on loans and an increase in interest on non-convertible debentures issued to third parties by Rs. 116.33

million or 45.0% to Rs. 374.84 million for the financial year 2016 from Rs. 258.51 million for the financial year

2015. Finance costs also reflected other borrowing costs as a result of amortization of transaction costs which

decreased by Rs. 21.78 million or 20.1% to Rs. 86.43 million for the financial year 2016 from Rs. 108.21

million for the financial year 2015.

Other expenses (including employee benefit expenses). Other expenses increased by Rs. 35.58 million or 49.3%

to Rs. 107.76 million for the financial year 2016 from Rs. 72.18 million for the financial year 2015. This was

primarily due to an increase in legal and consultation fees by 37.1% to Rs. 58.10 million for the financial year

2016 from Rs. 42.37 million for the financial year 2015, an increase in miscellaneous expenses to Rs. 24.51

million for the financial year 2016 from Rs. 11.70 million for the financial year 2015, an increase in travelling

and conveyance expenses by 16.9% to Rs. 6.13 million for the financial year 2016 from Rs. 5.25 million for the

financial year 2015, an increase in repairs and maintenance to Rs. 4.26 million for the financial year 2016 from

Rs. 1.01 million for the financial year 2015 and an increase in depreciation and amortization expense to Rs. 0.65

million for the financial year 2016 from Rs. 0.56 million for the financial year 2015.

Tax expense

Total tax expense was Rs. 74.59 million for the financial year 2016 from a total tax credit of Rs. 208.07 million

for the financial year 2015, which was primarily due to a one-time deferred tax credit of Rs. 281.88 million for

the financial year 2015. Current tax increased by 1.1% to Rs. 74.59 million for the financial year 2016 from Rs.

73.81 million for the financial year 2015.

Loss for the year

Loss for the year decreased by 20.1% to Rs. 674.05 million for the financial year 2016 from Rs. 843.40 million

for the financial year 2015 for the reasons stated above.

Financial year 2015 compared to financial year 2014

Income

Total income decreased by Rs. 1,634.27 million or 18.4% to Rs. 7,254.50 million for the financial year 2015

from Rs. 8,888.77 million for the financial year 2014, primarily due to a decrease in revenue from operations

which was offset by an increase in other income.

Revenue from operations. Revenue from operations decreased by Rs. 1,670.97 million or 19.1% to Rs. 7,064.87

million for the financial year 2015 from Rs. 8,735.84 million for the financial year 2014. This was primarily due

to a decrease in construction income and finance income. However, O&M income increased for the financial

year 2015 compared to the financial year 2014 and periodic maintenance income was generated during the

financial year 2015 and not the financial year 2014.

103

Construction income. Construction income decreased by Rs. 1,905.82 million or 34.1% to Rs. 3,687.04 million

for the financial year 2015 from Rs. 5,592.86 million for the financial year 2014. This was primarily due to a

decrease in construction income from JRPICL to Rs. 700.89 million for the financial year 2015 from Rs.

2,303.82 million for the financial year 2014 on account of the RPR II Project being commissioned in the

financial year 2015 and the CKC project receiving its provisional completion certificate in the financial year

2015 and a decrease in construction income from SBHL by Rs. 294.24 million or 11.0% to Rs. 2,384.31 million

for the financial year 2015 from Rs. 2,678.55 million for the financial year 2014 due to lower construction

activity and a decrease in construction income from HREL by Rs. 8.65 million or 1.4% to Rs. 601.84 million for

the financial year 2015 from Rs. 610.49 million for the financial year 2015 due to lower construction activity.

O&M income. O&M income increased by Rs. 59.21 million or 20.2% to Rs. 352.36 million for the financial

year 2015 from Rs. 293.15 million for the financial year 2014. This was primarily due to an increase in O&M

income from JRPICL by Rs. 50.60 million or 42.4% to 170.02 million for the financial year 2015 from Rs.

119.43 million for the financial year 2014, an increase in O&M income from NKEL by Rs. 5.83 million or 4.9%

to Rs. 123.76 million for the financial year 2015 from Rs. 117.93 million for the financial year 2014 and an

increase in O&M income from HREL by Rs. 2.79 million or 5.0% to Rs. 58.58 million for the financial year

2015 from Rs. 55.79 million for the financial year 2014.

Periodic maintenance income. Periodic maintenance income was Rs. 287.71 million for the financial year 2015

compared to no periodic maintenance income for the financial year 2014, due to NKEL having to undertake

periodic maintenance on the NKEL Project in accordance with the terms of the NKEL Concession Agreement

during the financial year 2015.

Finance income. Finance income decreased by Rs. 112.07 million or 3.9% to Rs. 2,737.76 million for the

financial year 2015 from Rs. 2,849.83 million for the financial year 2014, primarily due to decrease in the value

of the financial asset on account of the realization of annuities.

Other income. Other income increased by Rs. 36.70 million or 24.0% to Rs. 189.63 million for the financial

year 2015 from Rs. 152.93 million for the financial year 2015. This was primarily due to an increase in interest

income by 15.3% to Rs. 176.34 million for the financial year 2015 from Rs. 152.91 million for the financial year

2014 and an increase in other non-operating income to Rs. 13.29 million for the financial year 2015 from Rs.

0.02 million for the financial year 2014.

Expenses

Total expenses decreased by Rs. 1,181.91 million or 12.5% to Rs. 8,305.97 million for the financial year 2015

from Rs. 9,487.88 million for the financial year 2014, primarily due to a decrease in construction costs which

was offset by increases in finance costs, operating expenses and other expenses.

Construction costs. Construction costs decreased by Rs. 1,761.35 million or 34.3% to Rs. 3,369.88 million for

the financial year 2015 from Rs. 5,131.23 million for the financial year 2014. This was primarily due to a

decrease in construction costs at JRPICL by Rs. 1,488.09 million or 69.5% to Rs. 653.39 million for the

financial year 2015 from Rs. 2,141.48 million for the financial year 2014 on account of the RPR II Project being

commissioned during the financial year 2015 and the CKC Project receiving its provisional completion

certificate during the financial year 2015 and a decrease in construction costs at SBHL by Rs. 265.08 million or

11.0% to Rs. 2,148.03 million for the financial year 2015 from Rs. 2,413.11 million for the financial year 2014

on account of a decrease in construction activity and a decrease in construction costs at HREL by Rs. 8.17


2014.

Operating expenses. Operating expenses increased by Rs. 317.82 million to Rs. 594.54 million for the financial

year 2015 from Rs. 276.72 million for the financial year 2014, primarily due to periodic maintenance expense of

Rs. 261.04 million for the financial year 2015 due to NKEL undertaking periodic maintenance on the NKEL

Project in accordance with the terms of the NKEL Concession Agreement during the financial year 2015, an

increase in independent engineer fees by 21.3% to Rs. 7.23 million for the financial year 2015 from Rs. 5.96

million for the financial year 2014 which was attributable to NKEL, and an increase in O&M expenses by Rs.

55.51 million or 20.5% to Rs. 326.27 million for the financial year 2015 from Rs. 270.76 million for the

financial year 2014 due to increases in O&M expenses at JRPICL, HREL and NKEL.

104

Finance costs. Finance costs increased by Rs. 258.99 million or 6.5% to Rs. 4,269.37 million for the financial

year 2015 from Rs. 4,010.38 million for the financial year 2014, primarily due to an increase in interest on loans

by Rs. 268.33 million or 7.4% to Rs. 3,902.65 million for the financial year 2015 from Rs. 3,634.32 million for

the financial year 2014 and a decrease in interest on non-convertible debentures issued to third parties by Rs.

39.00 million or 13.1% to Rs. 258.51 million for the financial year 2015 from Rs. 297.51 million for the

financial year 2014. Other borrowing costs as a result of amortization of transaction costs increased by Rs. 29.66


2014.

Other expenses (including employee benefit expenses). Other expenses increased by Rs. 2.63 million or 3.8% to

Rs. 72.18 million for the financial year 2015 from Rs. 69.55 million for the financial year 2014. This was

primarily due to an increase in legal and consultation fees by Rs. 4.99 million or 13.3% to Rs. 42.37 million for

the financial year 2015 from Rs. 37.38 million for the financial year 2014, an increase in travelling and

conveyance expenses by Rs. 0.97 million or 22.7% to Rs. 5.25 million for the financial year 2015 from Rs. 4.28

million for the financial year 2014 and an increase in depreciation and amortization expense by Rs. 0.01 million

or 1.5% to Rs. 0.56 million for the financial year 2015 from Rs. 0.55 million for the financial year 2014, which

was partially offset by a decrease in insurance charges by Rs. 2.43 million or 94.9% to Rs. 0.13 million for the

financial year 2015 from Rs. 2.57 million for the financial year 2014 and a decrease in electricity charges to Rs.

0.26 million for the financial year 2015 from Rs. 1.02 million for the financial year 2014.

Tax expense

Total tax credit was Rs. 208.07 million for the financial year 2015 compared to a total tax credit of Rs. 76.80

million for the financial year 2014, primarily due to an increase in deferred tax credit to Rs. 281.88 million for

the financial year 2015 from Rs. 130.40 million for the financial year 2014. This was offset by a current tax

expense increase by 37.7% to Rs. 73.81 million for the financial year 2015 from Rs. 53.60 million for the


Loss for the year

Loss for the year increased to Rs. 843.40 million for the financial year 2015 from Rs. 522.31 million for the


Liquidity and Capital Resources

The IL&FS Transportation Trust has not previously been in existence and consequently has not been previously

capitalized or financed. Each of the Projects SPVs operates in a capital-intensive sector and has historically

financed the development of the Projects and other capital expenditures through a combination of equity and

debt financing from the Sponsor, borrowings from commercial banks, financial institutions and from related

parties and cash generated from operations. The Project SPVs’ liquidity requirements relate to servicing debt,

funding working capital requirements and maintaining cash reserves against fluctuations in operating cash

flows.

Cash Flows

Set forth below is a table of selected information from the Audited Combined Financial Statements of cash

flows for the three months ended June 30, 2016 and 2015 and the financial years 2016, 2015 and 2014.

Historical cash flows are likely to differ significantly from future cash flows due to, among other things,

changes in financing relating to the establishment of the IL&FS Transportation Trust, completion of

construction of the four projects and annual increases in O&M and overlay payments under the four O&M

agreements. See “Prospective Combined Financial Information”.

Particulars For the three months ended

June 30

Financial Year

2016 2015 2016 2015 2014

(In Rs. Million )

Net cash generated by operating activities 647.27 519.58 2,388.32 2,189.07 2,076.73

Net cash (used in)/ generated by investing

activities 460.88 (180.14) 478.73 (2,936.22) (2,340.60)

Net cash (used in)/ generated from financing activities

(560.66) (566.70) (3,257.28) 464.65 1,199.18

105

Net increase / (decrease) in cash and cash

equivalents 547.49 (227.26) (390.23) (282.50) 935.31

Cash flow from operating activities

Net cash generated by operating activities was Rs. 647.27 million for the three months ended June 30, 2016 and

consisted of loss, before tax, for the period of Rs. 286.30 million reflecting losses, before tax from JRPICL of

Rs. 228.74 million and losses, before tax, from HREL of Rs. 115.56 million which was offset by profits, before

tax, for the period from SBHL, of Rs. 13.55 million and NKEL of Rs. 44.45 million. Loss for the period, before

tax, reflected finance costs recognized in the statement of profit and loss of Rs. 1,045.55 million, interest on

term deposits and loans of Rs. 50.22 million and movements in working capital of increases in trade and other

receivables of Rs. 3.14 million, decreases in trade and other payables of Rs. 28.27 million. The cash generated

from operations was further reduced due to income taxes paid of Rs. 30.48 million.

Net cash generated by operating activities was Rs. 519.58 million for the three months ended June 30, 2015 and

consisted of loss, before tax, for the period of Rs. 264.40 million reflecting losses, before tax from JRPICL of

Rs. 246.57 million and losses, before tax, from HREL of Rs. 131.87 million which was offset by profits, before

tax from SBHL, of Rs. 65.56 million and NKEL of Rs. 48.48 million. Loss for the period, before tax, reflected

finance costs recognized in the statement of profit and loss of Rs. 1,091.11 million, interest on term deposits and

loans of Rs. 52.06 million and movements in working capital of increases in trade and other receivables of Rs.

126.85 million, decreases in trade and other payables of Rs. 102.64 million. The cash generated from operations

was further reduced due to income taxes paid of Rs. 25.65 million.

Net cash generated by operating activities was Rs. 2,388.32 million for the financial year 2016 and consisted of

loss, before tax, for the period, of Rs. 599.46 million reflecting losses, before tax, from JRPICL of Rs. 447.19

million and losses, before tax, from HREL of Rs. 538.05 million which was offset by profits, before tax, from

SBHL of Rs. 224.50 million and NKEL of Rs. 161.28 million. Loss for the period, before tax, reflected finance

costs recognized in the statement of profit and loss of Rs. 4,303.32 million, interest in income tax refund of Rs.

0.10 million, interest on term deposits of Rs. 194.02 million, and depreciation and amortization of non-current

assets of Rs. 0.65 million and movements in working capital of increases in trade and other receivables of Rs.

729.08 million, decreases in trade and other payables of Rs. 274.38 million. The cash generated from operations

was further reduced due to income taxes paid of Rs. 118.61 million.

Net cash generated from operating activities was Rs. 2,189.07 million for the financial year 2015 and consisted

of loss, before tax, for the period, of Rs. 1,051.47 million reflecting losses before tax, from JRPICL of Rs.

993.15 million and losses, before tax, from HREL of Rs. 521.38 million which was offset by profits, before tax,

from SBHL of Rs. 234.25 million and NKEL of Rs. 228.81 million. Loss for the period, before tax, reflected

finance costs recognized in the statement of profit and loss of Rs. 4,269.38 million, interest on term deposits and

loans of Rs. 176.30 million, and depreciation and amortization of non-current assets of Rs. 0.56 million and

movements in working capital of decreases in trade and other receivables of Rs. 98.77 million and decreases in

trade and other payables of Rs. 792.46 million. The cash generated from operations was further reduced due to

income taxes paid of Rs. 159.37 million.

Net cash generated from operating activities was Rs. 2,076.73 million for the financial year 2014 and consisted

of loss, before tax, for the period of Rs. 599.11 million reflecting losses, before tax, from JRPICL, of Rs. 649.67

million and losses, before tax, from HREL of Rs. 405.09 million which was offset by profits, before tax, from

SBHL of Rs. 263.44 million and NKEL of Rs. 192.21 million. Loss for the period, before tax, reflected finance

costs recognized in the statement of profit and loss of Rs. 4,010.38 million, interest on term deposits and loans

of Rs. 152.90 million, and depreciation and amortization of non-current assets of Rs. 0.55 million and

movements in working capital of decreases in trade and other receivables of Rs. 149.45 million and decreases in

trade and other payables of Rs. 1,255.98 million. The cash generated from operations was further reduced due to

income taxes paid of Rs. 75.65 million.

Cash flow from investing activities

Net cash generated by investing activities was Rs. 460.88 million for the three months ended June 30, 2016,

which primarily consisted of a decrease in receivables under the service concession agreement of Rs. 606.83

million, which reflects the fair value estimate of the construction services for the JRPICL Projects, the HREL

Project and the NKEL Project, which are all annuity projects that have been commissioned, payments for

106

intangible assets under development of Rs. 296.91 million, which reflect tolls collected for the SBHL Project

that have been capitalized as the project has not received its final completion certificate from the concessioning

authority, interest received on term deposit of Rs. 99.44 million, movement in other bank balances of Rs. 61.89

million and short term loan given to ITNL of Rs. 113.50 million.

Net cash used by investing activities was Rs. 180.14 million for the three months ended June 30, 2015, which

primarily consisted of a decrease in receivables under the service concession agreement of Rs. 593.66 million,

payments for intangible assets under development of Rs. 650.54 million interest received on term deposit of Rs.

25.97 million and movement in other bank balances of Rs. 149.20 million.

Net cash used in investing activities was Rs. 478.73 million for the financial year 2016, which primarily

consisted of a decrease in receivables under the service concession agreement of Rs. 2,666.48 million, payments

for intangible assets under development of Rs. 2,159.03 million, interest received on term deposits and loans of

Rs. 176.42 million and movement in other bank balances of Rs. 204.82 million.

Net cash used in investing activities was Rs. 2,936.22 million for the financial year 2015, which primarily

consisted of a decrease in receivables under the service concession agreement of Rs. 571.54 million, payments

for intangible assets under development of Rs. 3,362.42 million and interest received on term deposits and loans

of Rs. 103.79 million, movement in other bank balances of Rs. 248.53 million.

Net cash used in investing activities was Rs. 2,340.60 million for the financial year 2014, which primarily

consisted of an increase in receivables under the service concession agreement of Rs. 549.16 million, payments

for intangible assets under development of Rs. 1,877.82 million and interest received on term deposits and loans

of Rs. 86.87 million.

Cash flow from financing activities

Net cash used in financing activities was Rs. 560.66 million for the three months ended June 30, 2016, which

primarily consisted of payments of interest and financial charges of Rs. 844.65 million, repayment of long-term

borrowings of Rs. 2,070.65 million and dividends paid on equity shares of Rs. 178.70 million, which was offset

by receipt of grant of Rs. 219.66 million, the receipt of proceeds from long-term borrowings of Rs. 2,390.30

million and movement in current borrowings of Rs. 76.60 million.

Net cash used in financing activities was Rs. 566.70 million for the three months ended June 30, 2015, which

primarily consisted of payments of interest and financial charges of Rs. 1,049.69 million, repayment of long-

term borrowings of Rs. 276.72 million which was offset by receipt of proceeds from long-term borrowings of

Rs. 631.88 million and movement in current borrowings of Rs. 127.85 million.

Net cash used in financing activities was Rs. 3,257.28 million for the financial year 2016, which primarily

consisted of payments of interest and financial charges of Rs. 4,622.59 million, repayment of long-term

borrowings of Rs. 1,515.24 million, redemption of debentures of Rs. 453.00 million, receipt of grant of Rs.

321.35 million and dividends paid on equity shares of Rs. 199.54 million, which was offset by the receipt of

proceeds from long-term borrowings of Rs. 4,428.19 million and movement in current borrowings of Rs.

1,216.45 million.

Net cash used in financing activities was Rs. 464.65 million for the financial year 2015, which primarily

consisted of payments of interest and financial charges of Rs. 4,651.49 million, repayment of long-term

borrowings of Rs. 824.92 million, redemption of debentures of Rs. 516.00 million and dividends paid on equity

shares of Rs. 69.48 million, which was offset by the receipt of proceeds from long-term borrowings of Rs.

3,433.41 million, receipt of grant of Rs. 1,387.07 million and movement in current borrowings of Rs. 1,706.06

million.

Net cash used in financing activities was Rs. 1,199.18 million for the financial year 2014, which primarily

consisted of payments of interest and financial charges of Rs. 4,001.67 million and repayment of long-term

borrowings of Rs. 747.24 million, redemption of debentures of Rs. 571.00 million, and dividends paid on equity

shares of Rs. 69.03 million, which was offset by receipt of proceeds from long-term borrowings of Rs. 3,704.28

million, proceeds from the issue of shares by JRPICL of Rs. 740.75 million, movement in current borrowings

of Rs. 1,925.67 million and receipt of grant of Rs. 217.42 million.

Off-balance Sheet Arrangements

107

Neither the IL&FS Transportation Trust nor the Project SPVs have any off-balance sheet arrangements,

derivative instruments or other relationships with unconsolidated entities that were established for the purpose

of facilitating off-balance sheet arrangements.

Contractual Obligations and Contractual Commitments

The following table summarizes the contractual obligations and commercial commitments as of June 30, 2016

and the effect such obligations and commitments are expected to have on liquidity and cash flows in future

periods:

Contractual Obligations As of June 30, 2016 Less than 1 year 1 – 3 years 3 – 5 years

More than 5

years

(In Rs. Million )

Estimated amount of contracts remaining to be executed on capital account and not

provided for .............................................. 816.80 816.80 - - -

Commitments for contracts remaining to be executed on for operation and

maintenance and not provided for ............

12,692.45 312.50 2,125.74 1,093.41 9,161.20

Commitment for contracts remaining to be

executed and not provided for ................. 2.46 - - - -

Contingent Liabilities

Particulars

As of June 30, 2016

(In Rs. Million )

Claims not acknowledged as debt

Contractors claims1 2,365.50

Income tax demand pending with tribunal 154.57 1. JRPICL is a party to claims of Rs. 2,365.50 million which arose during the ordinary course of business

Related Party Transactions

The Project SPVs have engaged in the past, and may engage in the future, in transactions with related parties, on

an arm’s length basis.

Seasonality

Seasonality of traffic, while reflected in the traffic study for the SBHL Project (see SBHL Traffic Report), is not

relevant in the context of annuity based concessions.

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss related to adverse changes in market prices, including interest rate risk.

Interest Rate Risk

The Project SPVs have floating rate indebtedness with banks and other financial institutions and thus are

exposed to market risk as a result of changes in interest rates. Upward fluctuations in interest rates increase the

cost of both existing and new debt. None of the Project SPVs currently use any derivative instruments to modify

the nature of their exposure to floating rate indebtedness so as to manage interest rate risk.

Credit Risk

The Project SPVs are exposed to credit risk on accounts receivables owed to them by the concessioning

authorities. If the concessioning authorities do not pay promptly, or at all, the Project SPVs may have to make

provisions for or write-off such amounts.

108

LOANS AVAILED OF BY THE PROJECT SPVs

Set out below are the details of the loans of the Project SPVs as at October 1, 2016, together with a brief

description of certain material covenants of the relevant financing agreements:

A. Financing arrangements entered into with third parties and certain associates of the Sponsor:

Sr.

No.

Lenders Particulars of the documentation Amount Sanctioned as

at October 1, 2016

(in ₹ Million)

Amount availed of and

outstanding as at

October 1, 2016

(in ₹ million)

SBHL

(1). Central Bank of India

(“CBI”), Punjab &

Sind Bank (“PSB”), Allahabad Bank

(“AB”) and Oriental

Bank of Commerce (“OBC”),

collectively the

“Consortium

Lenders”).

Common loan agreement dated December 17,

2012, sanction letters issued by each of the

Consortium Lenders and the underlying security documents

Aggregate amount :

4,000.00

4,000.00

CBI:1,750.00 1,750.00

PSB: 1,000.00 PSB 1,000.00

AB: 750.00 AB: 750.00

OBC: 500.00 OBC : 500.00

Total 4,000.00 4,000.00

HREL

(1). Bank of India

(“BOI”), Bank of Maharashtra

(“BOM”), Andhra

Bank (“AB”), India Infrastructure

Finance Company

Limited (“IIFCL”) Allahabad Bank

(“ALLB”) and India

Infradebt Limited (“Infradebt”)

collectively the

(“Consortium

Lenders”)

Common loan agreement dated February 9,

2010, as amended by supplementary common loan agreement dated April 1, 2010, second

supplementary common loan agreement dated

August 18, 2010, third supplementary common loan agreement dated March 28,

2014, amendment number 4 to common rupee

loan agreement dated July 4, 2014 and fifth supplementary agreement dated March 27,

2015, sanction letters issued by each of the

Consortium Lenders, take out agreement dated July 4, 2014, as amended by the

supplementary takeout agreement dated March

27, 2015, tripartite agreement dated March 31, 2016 and private placement offer letter dated

March 27, 2015 for issuance of unlisted non-

convertible debentures, and the underlying security documents

Aggregate amount:

6,124.20

5,464.23

BOI: 629.30 558.75

BOM: 410.70 364.61

AB: 615.90 546.87

IIFCL: 2,464.40 2195.76

Infradebt: 1,700.00 1,528.43

ALLB: 303.90 269.81

Total 6,124.20 5,464.23

NKEL

(1). Investors represented

through IDBI Trusteeship Services

Limited acting as the debenture trustee.

Information memorandum for the issue of

secured, rated, listed, taxable, redeemable zero coupon, non-convertible debentures of the

face value of ₹ 1.00 million each along with Debenture Trust Deed dated December 8,

2010 as amended by amendment dated

December 13, 2010 and the underlying

security documents

4,636.00 1,950.62

Total 4,636.00 1,950.62

JRPICL (See Note 1 below)

(1). BOI, Union Bank of

India (“UBI”), ALLB, (iv) Federal

Bank Limited

(“FB”), and Oriental Bank of Commerce

(“OBC”),

collectively the “Consortium

Lenders”)

Common loan agreement dated March 25,

2010 along with the sanction letters issued by each of the Consortium Lenders and the

underlying security documents

Aggregate amount:

2,303.20

1,754.05

BOI:768.20 585.11

UBI:410.00 312.42

ALLB: 375.00 285.72

FB:375.00 285.34

OBC:375.00 285.46

(2). BOI, ALLB, AB, Union Bank of India

(“UBI”), ICICI Bank

(“ICICI”), Punjab & Sind Bank (“PSB”),

OBC, collectively the

“Consortium

Common loan agreement dated March 15, 2010 along with the sanction letters issued by

each of the Consortium Lenders and the


Aggregate amount: 5,532.50

4,198.67

BOI: 1,250.00 948.75

ALLB: 830.00 629.85

AB: 1,000.00 758.73

ICICI: 622.50 472.48

PSB: 415.00 314.92

109

Sr.

No.

Lenders Particulars of the documentation Amount Sanctioned as

at October 1, 2016

(in ₹ Million)

Amount availed of and

outstanding as at

October 1, 2016

(in ₹ million)

Lenders”) OCB:415.00 314.94

UBI:1,000.00 759.00

(3). BOI, ALLB, UBI, OBC, AB and FB

(“Consortium

Lenders”)

Common loan agreement dated March 25, 2010 between JRPICL, along with the

sanction letters issued by each of the

Consortium Lenders and the underlying security documents

Aggregate amount: 2,942.70

2,244.85

BOI: 792.70 604.70

ALLB: 400.00 305.17

UBI: 475.00 362.42

OBC: 400.00 305.10

AB: 475.00 362.31

FB:400.00 305.15

(4). ALLB, State Bank of

Bikaner and Jaipur,

(“SBJ”), Central

Bank of India

(“CBI”), State Bank of Patiala (“SBOP”)

and Canara Bank

(“CB”), collectively (“Senior Lenders”)

Common loan agreement dated November 22,

2011along with the sanction letters issued by

each of the Consortium Members and the


Aggregate amount:

3,730.00

3,425.86

ALLB: 1,250.00 1,148.27

SBJ:750.00 688.81

CBI: 750.00 688.81

SBOP: 500.00 459.19

CB:480.00 440.78

(5). Dena Bank (“DB”)

and ALLB,

collectively (“Senior

Lenders”)

Loan agreement dated December 5, 2011

along with the sanction letters issued by the

Senior Lenders and the underlying security documents

Aggregate amount:

1,815.00

1,478.81

ALLB:1,000.00 814.82

DB:815.00 663.99

(6). IL&FS Financial Services Limited

(“IFIN”)

Loan agreement dated October 27, 2015 along with the sanction letter dated October 21,

2015, issued by IFIN

1,775.00 1,775.00

(7). IFIN Loan agreement dated September 28, 2015 along with the sanction letter dated September

23, 2015, issued by IFIN

1,560.00 1,560.00

(8). Nana Layja Power Company Limited

Letter dated June 28, 2016 for the unsecured inter corporate deposit

750.00 750.00

(9). IL&FS Airports

Limited

Letter dated June 29, 2016 for the unsecured

inter corporate deposit

600.00 600.00

(10). Indusind Bank Limited

Deed of assignment dated August 26, 2013 for assignment of loans advanced by ITNL

(through loan agreements dated October 19,

2012 and April 27, 2012) and the underlying security documents.

1,550.00 571.43

(11). Aditya Birla Finance

Limited (“ABFL”)

Facility agreement dated March 22, 2013

along with the sanction letter issued by ABFL

and the underlying security documents

862.20 862.20

(12). ABFL Facility agreement dated March 22, 2013

along with the sanction letter issued by ABFL

and the underlying security documents

276.40 276.40

(13). IL&FS Rail Limited Loan agreement dated March 28, 2016 along with the sanction letter dated March 28, 2016

issued by IL&FS Rail Limited

1,500.00 1,500.00

Total 25,197.00 20,997.28

Note 1:

As of October 1, 2016, JRPICL has an aggregate outstanding indebtedness of Rs. 22,851.88 million (the

“JRPICL Debt”), comprising Rs. 1,864.60 million of Sponsor loans (the “JRPICL Sponsor Loans”) and

Rs.20,997.28 million of other loans (availed of from third parties and certain associates of the Sponsor) (the

“JRPICL Other Loans”).

Prior to the completion of the fund raising exercise, the Sponsor may consider converting the JRPICL Sponsor

Loans into equity shares of JRPICL, in accordance with applicable laws and subject to receipt of the necessary

approvals. Further, a part of the JRPICL Other Loans is proposed to be refinanced through the issuance of non-

convertible debentures to eligible investors, in accordance with applicable laws and subject to receipt of the

necessary approvals (the “JRPICL Phase I Refinanced Debt”).

110

Pursuant to the fund raising exercise, a portion of the proceeds from the fund raising exercise is proposed to be

utilized towards, among others, partial repayment or prepayment, as applicable, of the JRPICL Phase I

Refinanced Debt. Upon completion of the the proposed proposed fund raising exercise, the remaining JRPICL

Phase I Refinanced Debt is proposed to be refinanced. Such refinancing may be undertaken by, among others,

through issuance of debt securities, in accordance with applicable laws, including complying with any

requirements of obtaining Unitholders’ approval (the “JRPICL Phase II Refinanced Debt”).

The indicative details and terms of the JRPICL Phase II Refinanced Debt are set out below:

Instrument Listed, rated, redeemable, secured, non-convertible debentures to be issued in the form of

separately transferable redeemable principal parts, in one or more series (“Series A NCDs”).

Indicative Series A NCD

Amount

Up to Rs. 12,500 million.

Indicative Coupon 9.50%

Coupon Frequency Quarterly. Please also refer to the indicative Series A NCDs servicing schedule set out below

(the “Schedule”).

Coupon Payment Dates As set out in the Schedule.

Tenure Up to January 20, 2029

Security First and exclusive charge on all the following assets of JRPICL in favour of the debenture

trustee, acting for the benefit of the debenture holder:

(a). all movable, tangible and intangible assets, receivables, current assets, loans and

advances, cash and investments created as part of JRPICL Projects to the extent

permissible under the concession agreements;

(b). the escrow accounts and the escrow sub-accounts maintained by JRPICL, all money

lying in the escrow accounts and the escrow sub-accounts including debt service

coverage ratio (if any), major maintenance reserve, into which all the project

revenues and insurance proceeds except claims are to be deposited;

(c). InvIT Escrow (as hereinafter defined). Cash available in the InvIT Escrow shall serve

as a first loss cover for meeting any shortfall in debt servicing obligations of the

Series A NCDs;

(d). Assignment of the rights, title, benefits, and demands of JRPICL under the project

documents, (save and except claims against the concessioning authority for any

compensation due to any cost overrun, over and above the annuities), to the extent

covered by and in accordance with the substitution agreement as per each concession

agreement;

(e). Assignment of all rights under project guarantees and undertakings obtained

pursuant to construction contract, service and operations contract, if any, executed in

relation to the projects, to the extent permissible under the concession agreements;

(f). First ranking assignment of all contracts, documents, insurance (debenture trustee to

be named as loss payee), clearances and interests of JRPICL;

(g). Unconditional and irrevocable guarantee from the IL&FS Transportation Trust for

meeting any shortfall in debt servicing/ termination payments (if any) of the Series A

NCDs; and

(h). Charge on distribution accounts of each of HREL, SBHL and NKEL under their

respective escrow accounts.

Debt Service Reserve JRPICL to maintain a debt service reserve of Rs. 400 million throughout the tenure of the

Series A NCDs.

Major Maintenance

Reserve

JRPICL shall, on an annual basis, ensure that amounts equivalent to the required major

maintenance reserve in the subsequent year, determined as per the base case business model,

are deposited in the major maintenance reserve sub-accounts. Cash portion of the major

maintenance reserve, if any, will be permitted to be invested in permitted investments.

Other key conditions (a). The subordinate loans from IL&FS Group to JRPICL and the non-convertible

debentures to be issued by JRPICL to the IL&FS Transportation Trust (pursuant to

the Debenture Subscription Agreement) in JRPICL will be unsecured and will not

have a right to call default on JRPICL. (b). The IL&FS Transportation Trust shall cause a bank guarantee to be provided to the

Government of Jharkhand (“GoJ”) of the amount equivalent to the sum required to

be retained by the GoJ from the annuities pursuant to the terms of the concession

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agreements. In the event the IL&FS Transportation Trust is unable to provide such a

bank guarantee to the GoJ, ITNL shall arrange for IL&FS Transportation Trust to

provide such bank guarantee to the GoJ. (In the event of change of ITNL as the

Sponsor of the IL&FS Transportation Trust, the incumbent sponsor shall be liable

and obligated to provide such bank guarantee to the GoJ).

(c). IL&FS Transportation Trust will be required to hold an escrow account (the “InvIT

Escrow”) where all cash flow proceeds of repayments and interest payments of the

non-convertible debentures issued by each of JRPICL, HREL and SBHL to the IL&FS

Transportation Trust and issued by JRPICL, SBHL and HREL along with interest

shall be deposited. Further, the dividend paid by each of the Project SPVs will also be

deposited into the InvIT Escrow. The cash available in the InvIT Escrow shall be used

for meeting of any shortfall in debt servicing of the Series A NCDs. Furthermore, the

distribution from IL&FS Transportation Trust to the Unitholders shall be done on an

annual basis subject to satisfactory servicing of the Series A NCDs, maintenance of

adequate debt service coverage ratio/ major maintenance reserve account and no

default subsisting therein.

(d). The termination payments, if any, received in the InvIT Escrow from JRPICL, HREL,

SBHL and NKEL, shall be first utilized to meet the outstanding debt of Series A

NCDs.

(e). The debenture holders/debenture trustee of the Series A NCDs shall have the right to

substitute the operations and maintenance contractor (regular and periodic) in the

event of:

material breach under the existing operations and maintenance or;

increase in the operations and maintenance expenses beyond the budgeted

amount.

Schedule

Sr.No. Repayment Date Particulars of Principal Re-payment (in Rs. Million)

(1). 20-01-2017 122.92

(2). 20-04-2017 219.51

(3). 20-07-2017 131.05

(4). 20-10-2017 227.84

(5). 20-01-2018 138.00

(6). 20-04-2018 234.54

(7). 20-07-2018 167.94

(8). 20-10-2018 254.20

(9). 20-01-2019 178.66

(10). 20-04-2019 262.40

(11). 20-07-2019 189.14

(12). 20-10-2019 273.12

(13). 20-01-2020 198.38

(14). 20-04-2020 264.46

(15). 20-07-2020 194.98

(16). 20-10-2020 267.34

(17). 20-01-2021 204.14

(18). 20-04-2021 271.96

(19). 20-07-2021 211.17

(20). 20-10-2021 283.43

(21). 20-01-2022 221.01

(22). 20-04-2022 311.67

(23). 20-07-2022 239.08

(24). 20-10-2022 324.75

(25). 20-01-2023 263.71

(26). 20-04-2023 317.89

(27). 20-07-2023 257.59

(28). 20-10-2023 330.77

(29). 20-01-2024 270.06

(30). 20-04-2024 352.90

(31). 20-07-2024 295.37

(32). 20-10-2024 368.30

(33). 20-01-2025 308.92

(34). 20-04-2025 351.65

(35). 20-07-2025 293.35

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Sr.No. Repayment Date Particulars of Principal Re-payment (in Rs. Million)

(36). 20-10-2025 369.02

(37). 20-01-2026 306.76

(38). 20-04-2026 376.97

(39). 20-07-2026 317.84

(40). 20-10-2026 393.47

(41). 20-01-2027 330.53

(42). 20-04-2027 425.74

(43). 20-07-2027 -

(44). 20-10-2027 405.88

(45). 20-01-2028 -

(46). 20-04-2028 295.37

(47). 20-07-2028 -

(48). 20-10-2028 476.19

B. Aggregate loans advanced by the Sponsor to HREL, SBHL and JRPICL through letter loan agreements,

term loan agreements and subordinate debt agreements:

Sr.

No.

Lender Amount sanctioned as at October

1, 2016

(in ₹ Million)

Amount availed of and outstanding as

at October 1, 2016

(in ₹ million)

SBHL

(1). ITNL 1,701.40 1,701.40

HREL

(1). ITNL 4,203.27 4,203.27

JRPICL

(1). ITNL 2,511.10 1,864.60

Principal terms of the borrowings availed by the Project SPVs from third parties:

1. Interest: In terms of the loans availed by the Project SPVs from the third parties, the interest rate

typically ranges between 9.75% to 14.00% per annum.

2. Tenor: The duration of term loans availed of ranges between 12 to 15 years. Further, the term of the non-

convertible debentures issued by the HREL and NKEL is 10 years.

3. Security: In terms of borrowings where security is required to be created, each of the Project SPVs is

typically required to create security by way of, amongst others, a first ranking pari-passu charge on all

movable, immovable (if applicable), tangible and intangible assets, receivables, cash (including amounts

in the escrow account) and investments created as part of the respective projects, other than the project

assets (as defined in the respective concession agreements); assignment of all rights and benefits under

the project agreements and clearances in favour of the relevant lenders (collectively, the “Security

Coverage”). In certain cases, the security is through certain guarantees and undertakings issued by ITNL

to the relevant lenders.

There may be additional requirements for creation of security under the various borrowing arrangements

entered into by the Project SPVs.

4. Re-payment: The term loans obtained from the consortium lenders are typically repayable in 42 to 45

quarterly instalments, as specified in the relevant financing documents. The non convertible debentures

issued by HREL and NKEL are redeemable in instalments between March 2011 and September 2025.

5. Prepayment: The Project SPVs typically have an option to prepay the loan or any part thereof subject to

the prior consent of the respective lenders and in certain cases, subject to the payment of the pre-payment

premium, in the manner specified in the respective financing documents.

6. Events of Default: Borrowing arrangements entered into by the Project SPVs contain standard events of

default, including:

(a). change in constitution or control of the Project SPVs, except as specified;

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(b). abandonment of the projects by the Project SPVs;

(c). breach of the obligations under any term of the relevant financing agreement, or any other

financing agreement entered into by the Project SPVs; and

(d). making restricted payments (as defined in the relevant financing agreement) in breach of the

specified conditions.

This is an indicative list and there are additional terms that may amount to an event of default under the various

borrowing arrangements entered into by the Project SPVs.

Principal terms of the borrowings availed of by the Project SPVs from the Sponsor and certain of its

associates

1. Interest: The loans advanced by ITNL aggregating to Rs. 5,134.60 million to the Project SPVs are

interest free loans. Further, loans advanced by ITNL aggregating to Rs. 2,634.67 million to the Project

SPVs carry an interest rate ranging from 13.10% to 13.90%. In terms of the loans availed by the Project

SPVs from the associates of the Sponsor, the interest rate typically ranges between on 10.80 % to 15 %

per annum. Further, the interest on the inter-corporate deposits placed with JRPICL typically ranges

between 15.50% to 16% per annum.

2. Tenor: Certain loans advanced by the Sponsor and its associates are for a period of three years. The

subordinate loans are generally valid till close to the expiry of the concession periods (as provided in the

respective concession agreements entered into by the Project SPVs). The short term loans are typically

advanced for a period of one year and may be extended at the discretion of the Sponsor.

3. Security: A majority of the subordinate loans granted by the Sponsor are unsecured. Certain subordinate

loans granted by the Sponsor are secured by, amongst others, a second pari passu charge over the

Security Coverage. In addition, the term loans granted by Sponsor are secured through the demand

promissory notes issued in favour of the Sponsor. Short term loans granted by Sponsor and the inter-

corporate deposits are typically unsecured.

4. Re-payment: Short term loans granted are typically repaid in one year and may be renewed annually.

Term loans granted by the Sponsor are typically repaid at the end the end of their tenure. The subordinate

loans advanced by the Sponsor are typically repayable in 4 to 13 quarterly instalments, as prescribed in

the respective agreements.

5. Prepayment: The facilities availed of from the Sponsor and its associates may be prepaid with or without

the consent of the relevant lender, as applicable, without the payment of prepayment premium.

7. Events of Default: Borrowing arrangements entered into by the Project SPVs with the Sponsor and its

associates contain standard events of default, including:

(a). breach of the obligations under any term of the relevant financing agreement; any other financing

agreement entered into by the Project SPVs;

(b). written admission by the respective Project SPV of its inability to pay the dues under the facilities;

and

(c). appointment of receiver or liquidator for any of the Project SPVs undertaking.

This is an indicative list and there are additional terms that may amount to an event of default under the relevant

financing documents.

Furthermore, the Sponsor may consider converting, whether partly or fully, the loans advanced to each of

HREL, SBHL and JRPICL into equity shares of such Project SPVs and any such conversion will be subject to

receipt of the necessary approvals in this regard.

Given the nature of the aforementioned borrowings and the terms of repayment / prepayment, the aggregate

outstanding borrowing amounts may vary from time to time. In addition to the above, each of the Project SPVs

may, from time to time, enter into re-financing arrangements and draw down funds thereunder.

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SUMMARY OF KEY AGREEMENTS

(A). Trust Deed

The Trustee has entered into the Trust Deed in terms of the InvIT Regulations, the key terms of which

are provided below.

1. Powers of the Trustee:

The Trustee has been provided with various powers under the Trust Deed in accordance with the Indian

Trusts Act, 1882 and the InvIT Regulations, including but not limited to:

(i). The Trustee shall, in relation to the IL&FS Transportation Trust, have all powers that a

person competent to contract and acting as a beneficial owner of such property has.

(ii). The Trustee shall have the power to determine, in accordance with the Investment

Management Agreement and the investment objectives, distributions to Unitholders and

other rights attached to the Units in compliance with the InvIT Regulations.

(iii). The Trustee shall oversee voting of Unitholders.

(iv). The Trustee shall have the power to do the following, which may be delegated to the

Investment Manager: (a) accept subscriptions to Units of the IL&FS Transportation Trust;

(b) issue and allot Units to the Unitholders; and (c) subject to and only in accordance with

the terms of the documents in relation to the IL&FS Transportation Trust and the InvIT

Regulations, transfer the Units.

(v). The Trustee shall invest and hold the IL&FS Transportation Trust Assets for the benefit of

the Unitholders and shall be empowered to make investment decisions.

(vi). The Trustee shall have the power to make such reserves out of the income or capital as the

Trustee may deem proper.

(vii). The Trustee shall have the power to employ and pay at the expense of the IL&FS

Transportation Trust, any agent in any jurisdiction whether attorneys, solicitors, brokers,

banks, trust companies or other agents.

(viii). The Trustee shall, on behalf of the IL&FS Transportation Trust, appoint an investment

manager to manage the IL&FS Transportation Trust and oversee the activities of the

investment manager so appointed.

(ix). The Trustee shall, on behalf of the IL&FS Transportation Trust, appoint a project manager

for the IL&FS Transportation Trust, and shall oversee the activities of the project manager

so appointed.

(x). The Trustee shall advise the Investment Manager in relation to the appointment of any

Valuer, Auditors, registrar and transfer agent, merchant bankers, custodian, credit rating

agency and any other intermediary or service provider or agent. The Investment Manager

shall ensure that the activities of, and the services provided by, any of the intermediaries are

in compliance with the InvIT Regulations and applicable law.

(xi). The Trustee may appoint any custodian in order to provide custodian services.

(xii). The Trustee shall have the power and duty to pay all such duties, fees or taxes (and any

interest or penalty chargeable thereon) as well as to create any reserves for future potential

tax liability out of the IL&FS Transportation Trust or the income thereof.

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(xiii). The Trustee shall have the power to pay expenses in relation to the IL&FS Transportation

Trust out of the funds held by the IL&FS Transportation Trust.

(xiv). The Trustee shall, in discharge of its duties, have the power to take the opinion of legal/tax

counsel in any jurisdiction.

(xv). The Trustee may sell, rent or buy any property, or borrow property from or carry out any

other transaction with the trustees of any other trust or the executors or administrators of any

estate subject to the terms and conditions set out in the Trust Deed.

(xvi). The Trustee shall have the power to effect compromises, including by accepting property

before the time at which it is transferable or payable or compromising, compounding or

otherwise settling anyclaim or thing whatsoever relating to the IL&FS Transportation Trust

or the Trust Deed.

(xvii). The Trustee shall have the power to borrow funds, including any subordinated equity or

other fund from any person or authority (whether government or otherwise, whether Indian

or overseas).

(xviii). Subject to the conditions laid down in any offer document or placement memorandum, and

the InvIT Regulations, the Trustee may retain any proceeds received by the IL&FS

Transportation Trust from any Project SPV.

(xix). The Trustee may, make rules to give effect to, and carry out the investment objectives,

which may be delegated to the investment manager including, the manner of recording the

records and particulars of the Unitholders; the norms of investment by the IL&FS

Transportation Trust in accordance with the investment objectives of the IL&FS

Transportation Trust and in accordance with the powers and authorities of the Trustee;

matters relating to entrustment / deposit or handing over of any securities or special purpose

vehicles of the IL&FS Transportation Trust to any one or more custodians and the procedure

relating to the holding thereof by the custodian; such other administrative, procedural or

other matters relating to the administration or management of the affairs of the IL&FS

Transportation Trust and which matters are not by the very nature required to be included or

provided for in the Trust Deed or by the management thereof and which matters are not

inconsistent with the provisions of the Trust Deed; procedure for seeking the vote of the

Unitholders either by calling a meeting or through postal ballot or otherwise; and procedure

for summoning and conducting meetings of Unitholders.

(xx). The Trustee shall cause the Depository to maintain the Depository Register.

(xxi). The Trustee shall review the reports required in terms of InvIT Regulations and applicable

law and make the relevant intimation to SEBI in this regard.

(xxii). Subject to applicable law, the Trustee may at any time, buyback the Units from the

Unitholders.

(xxiii). The Trustee shall have the power to open one or more bank accounts for the purposes of the

IL&FS Transportation Trust.

(xxiv). The Trustee shall have the power to take up with SEBI or with the stock exchange(s), as

applicable, any matter which has been approved in any meeting of Unitholders, if the matter

requires such action.

(xxv). The Trustee shall also have the following powers and authorities exercisable pursuant to the

advice of the Investment Manager:

(a). to institute, conduct, compromise, compound, or abandon any legal proceedings for

or on behalf of or in the name of the IL&FS Transportation Trust or the Trustee, and

to defend, compound or otherwise deal with any such proceedings against the IL&FS

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Transportation Trust or Trustee or its officers or concerning the affairs of the IL&FS

Transportation Trust, and also to compound and allow time for payment or

satisfaction of any equity due and of any claims or demands by or against the IL&FS

Transportation Trust and to refer any differences to arbitration and observe and

perform any awards thereof;

(b). to make and give receipts, releases and other discharges for moneys payable to the

IL&FS Transportation Trust and for the claims and demands of the IL&FS

Transportation Trust;

(c). to enter into all such negotiations and contracts, and, execute and do all such acts,

deeds and things for or on behalf of or in the name of the IL&FS Transportation Trust

as the Trustee may consider expedient for or in relation to any of the matters or

otherwise for the purposes of the IL&FS Transportation Trust;

(d). to sign, seal, execute, deliver and register according to law all deeds, documents, and

assurances in respect of the IL&FS Transportation Trust; and

(e). take into their custody and/or control all the capital, assets, property of the IL&FS

Transportation Trust and hold the same in trust for the Unitholders in accordance with

the Trust Deed and the InvIT Regulations.

(xxvi). The Trustee may, delegate to any committee or any other person, any powers set out above

and the duties set out below, or as available to it under the InvIT Regulations and applicable

law. Any action taken by such committee or persons in respect of the IL&FS Transportation

Trust shall be construed as an act done by the Trustee except in case of gross negligence or

wilful misconduct or fraud on part of such person.

(xxvii). The Trustee has all such powers as it may be required to exercise under the InvIT

Regulations for the time being in force and do all such matters and things as may promote

the IL&FS Transportation Trust or as may be incidental to or consequential upon the

discharge of its functions and the exercise and enforcement of all or any of the powers and

rights under the Trust Deed.

2. Duties of the Trustee:

The Trustee shall perform its duties as required under the Trust Deed in accordance with the Indian

Trusts Act, 1882 and the InvIT Regulations, including but not limited to:

(i). The Trustee shall use best endeavours to carry on and conduct its business in a proper and

efficient manner in the best interest of the Unitholders.

(ii). The Trustee shall, on behalf of IL&FS Transportation Trust, enter into the Investment

Management Agreement, the Project Implementation and Management Agreement and other

documents.

(iii). The Trustee shall appoint an investment manager and project manager in terms of the InvIT

Regulations and may delegate its responsibilities to the investment manager and project

manager in writing.

(iv). The Trustee shall ensure that the investment manager complies with the InvIT Regulations,

including in relation to reporting and disclosure requirements, reviewing of transactions,

setting up of the necessary systems and procedures, preparation of reports, convening of

meetings of the Unitholders, and other compliances and obligations cast on the investment

manager in terms of the InvIT Regulations and other applicable laws.

(v). In case of change in Investment Manager due to removal or otherwise, the Trustee shall,

prior to such change, obtain approval from the Unitholders in accordance with the InvIT

Regulations.

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(vi). The Trustee shall provide SEBI and the stock exchange(s), where applicable, such

information as may be sought by SEBI or by the stock exchange(s) pertaining to the activity

of the IL&FS Transportation Trust and shall comply with intimation requirements under the

InvIT Regulations.

(vii). The Trustee shall at all times exercise due diligence in carrying out its duties and protecting

the interests of the Unitholders.

(viii). The Trustee shall oversee activities of the project manager in terms of the InvIT Regulations

and shall obtain relevant records and information from the project manager.

(ix). The Trustee shall ensure that subscription amount is kept in a separate bank account in name

of the IL&FS Transportation Trust and is only utilised for adjustment against allotment of

Units or refund of money to the applicant till the time such Units are listed and the same will

be utilised for objectives of the offering as will be mentioned in the offer document or

placement memorandum.

(x). The Trustee shall cause the books of accounts of the IL&FS Transportation Trust to be in

accordance with the Trust Deed.

(xi). The Trustee shall ensure that all acts, deeds and things are done for the attainment of the

investment objective of the IL&FS Transportation Trust and in compliance with the InvIT

Regulations and to secure the best interests of the Unitholders.

(xii). The Trustee shall file such reports as may be required by SEBI or any other regulatory

authority or as required under the InvIT Regulations with regard to the activities carried on

by the IL&FS Transportation Trust.

(xiii). The Trustee shall periodically review the status of the Unitholders’ complaints and their

redressal undertaken by the Investment Manager.

(xiv). The Trustee and its directors, officers, employees and agents shall at all times maintain the

greatest amount of confidentiality as regards the activities and assets of the IL&FS

Transportation Trust and such other matter connected with them.

(xv). The assets and liabilities of the IL&FS Transportation Trust shall at all times be segregated

from the assets and liabilities of the Trustee and the assets and liabilities of other trusts

managed by the Trustee.

(xvi). The Trustee shall ensure that the remuneration of the Valuer is not linked to or based on the

value of the asset being valued.

(xvii). The Trustee or its associates shall not invest in Units of the IL&FS Transportation Trust.

(xviii). The Trustee shall fulfil its obligations in terms of Regulation 9 of the InvIT Regulations.

3. Rights of the Trustee:

The Trustee shall have the following rights:

(i). The Trustee may, in the discharge of its duties, act upon any advice obtained in writing from

any bankers, accountants, brokers, lawyers, professionals, consultants, or other experts

acting as advisers to the Trustee.

(ii). Subject to applicable law, no Unitholder shall be entitled to inspect or examine the IL&FS

Transportation Trust’s premises or properties without the permission of the Trustee, who

shall give such permission, if necessary. Further, no Unitholder shall be entitled to require

discovery of any information respecting any detail of the IL&FS Transportation Trust’s

activities or any matter which may relate to the conduct of the business of the IL&FS

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Transportation Trust and which information may, in the opinion of the Trustee and the

Investment Manager, adversely affect the interest of other Unitholders.

(iii). The Trustee shall be entitled to reimburse itself and shall be entitled to charge the IL&FS

Transportation Trust, and shall be entitled to be indemnified and be kept indemnified from

the IL&FS Transportation Trust and from any distributions made by the IL&FS

Transportation Trust to the Unitholders, with the expenses, outgoings, taxes, levies, and

liabilities (including indemnity obligations, if any) as set out in the Trust Deed.

4. Liabilities of the Trustee:

The liabilities of the Trustee in terms of the Trust Deed are as follows:

(i). The Trustee shall only be chargeable for such monies, stocks, funds and securities as the

Trustee shall have actually received and shall not be liable or responsible for any banker,

broker or custodian in whose hands the same may be deposited or placed, nor for the

deficiency or insufficiency in the value of any investments of the IL&FS Transportation

Trust nor otherwise for any involuntary loss.

(ii). The Trustee shall not be under any liability on account of anything done or omitted to be

done or suffered by the Trustee in good faith in accordance with, or in pursuance of, any

request or advice of the Investment Manager.

(iii). The Trustee may accept as sufficient evidence for the value of any investment or for the cost

price or sale price thereof or for any other fact within its competence, a certificate by a

Valuer or a stockbroker or any other professional person appointed by the Investment

Manager for the purpose.

(iv). Subject to applicable law, nothing contained herein shall prevent the Trustee from

contracting or entering into any financial, banking or other transaction with the Investment

Manager or any Unitholder or any special purpose vehicle whose shares or other securities

form part of the IL&FS Transportation Trust or from being interested in any such contract or

transaction.

(v). The Trustee shall not be under any obligation to institute, acknowledge the service of, appear

in, prosecute or defend any action, suit, proceedings or claim in respect of the provisions

hereof or in respect of the IL&FS Transportation Trust Assets or any part thereof or any

corporate action which in its opinion would or might involve it in expense or liability unless

the Investment Manager shall so request in writing and the Trustee is satisfied that the value

of the investment is sufficient to provide adequate indemnity against costs, claims, damages,

expenses or demands to which it may be put as Trustee as a result thereof.

(vi). The Trustee shall not be liable in respect of any action taken or damage suffered by it on

reliance upon any notice, resolution, direction, consent, certificate, affidavit, statement,

certificate of stock, plan of reorganization or (without being limited in any way by the

foregoing) other paper or document believed to be genuine and to have been passed, sealed

or signed by appropriate authorities or entities.

(vii). The Trustee shall not be liable to the Unitholders for doing or failing to do any act or thing

which by reason of any provision of any present or future law or regulation made pursuant

thereto, or of any decree, order or judgment of any court, or by reason of any request

announcement or similar action (whether of binding legal effect or not) which may be taken

or made by any person or body acting with or purporting to exercise the authority of any

government (which legally or otherwise) it shall be directed or requested to do or perform or

to forbear from doing or performing.

(viii). The Trustee shall not be responsible to any Unitholder for the authenticity of any signature

affixed to any document or be in any way liable for any forged or unauthorized signature on

or for acting upon or giving effect to any such forged or unauthorized signature.

119

(ix). The Trustee shall not be prevented from acting as trustee of other trusts or alternative

investment funds or venture capital funds or private equity funds or real estate investment

trusts or infrastructure investment trust or private trusts or customised fiduciary services,

separate and distinct from the IL&FS Transportation Trust, and retaining for its own use and

benefit all remuneration, profits and advantages which it may derive therefrom, as permitted

under applicable law.

(x). If the Trustee is required by the InvIT Regulations or any applicable law to provide

information regarding the IL&FS Transportation Trust and/or the Sponsor and/or Unitholder,

the IL&FS Transportation Trust investments and income therefrom and provisions of these

presents and complies with such request in good faith, whether or not it was in fact

enforceable, the Trustee shall not be liable to the Unitholders or to any other party as a result

of such compliance or in connection with such compliance.

(xi). The Trustee shall not incur any liability for doing or (as the case may be) failing to do any

act or thing which may result in a loss to a Unitholder (by reason of any depletion in the

value of the IL&FS Transportation Trust Assets or otherwise), except in the event that such

loss is a direct result of fraud, gross negligence or wilful misconduct on the part of the

Trustee as determined by a court of competent jurisdiction.

(xii). It is hereby clarified that the liability of the Trustee shall be limited to the extent of the fees

received by it, in all circumstances whatsoever except in case of any gross negligence or

wilful misconduct or fraud on the part of the Trustee as settled by a court of competent

jurisdiction.

5. Indemnity:

In addition to the fees, distributions and expense reimbursements, the IL&FS Transportation Trust will

indemnify the Trustee, the Sponsor and any of their respective officers, directors, shareholders,

sponsors, partners, members, employees, advisors and agents (“Indemnitees”) against any claims,

losses, costs, damages, liabilities and expenses, including legal fees (“Losses”) incurred by them by

reason of their activities on behalf of the IL&FS Transportation Trust or incurred by any of the

Indemnitees in relation to any proceedings, suits against any of the Indemnitees, unless such Losses

resulted from fraud, gross negligence or wilful misconduct of the Indemnitees as determined by a court

of competent jurisdiction. For the avoidance of doubt, the Sponsor will not be permitted to claim any

indemnity for any transfer of assets to be made to the IL&FS Transportation Trust.

6. Termination:

The IL&FS Transportation Trust is subject to dissolution and termination in accordance with and

subject to the InvIT Regulations and applicable law:

(i). if the IL&FS Transportation Trust fails to make any offer of Units, whether by way of public

issue or private placement, within the time period stipulated in the InvIT Regulations or any

other time period specified by SEBI, the IL&FS Transportation Trust shall surrender its

certificate to SEBI and cease to operate as an investment infrastructure trust, unless the

period is extended by SEBI.

(ii). upon the liquidation of the projects and if there are no projects under the IL&FS

Transportation Trust and the IL&FS Transportation trust does not invest in any new project

for six months thereafter; or

(iii). upon delisting of the Units in accordance with InvIT Regulations.

(B). Key terms of the Project Implementation and Management Agreements

The key terms of Project Implementation and Management Agreements are set out below.

1. Duties of the project manager:

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(i). The Project Manager shall undertake implementation, development, maintenance, operation

and management of the Project including arrangement for the appropriate maintenance and

appointment and supervision of agents, if any, as may be necessary for discharge of its duties

under the terms of the Project Implementation and Management Agreements, the project

agreements and under the InvIT Regulations.

(ii). The Project Manager shall oversee the progress of development, approval status and other

aspects of the Project that may be under-development or, of any new projects, until its

completion in accordance with any agreement that may be entered into in this regard,

including the supervision of agents appointed for such purpose.

(iii). The Project Manager shall discharge all obligations in respect of implementation,

development, maintenance, operation and management of the infrastructure projects in terms

of the O&M agreement and the Project Implementation and Management Agreements.

Further, the Project Manager shall discharge all obligations in respect of the Project SPV as

contemplated under the Services Agreement.

(iv). The Project Manager shall provide compliance certificate(s), as may be specified, on a

quarterly basis to the Investment Manager and the Trustee in accordance with the InvIT

Regulations, in the form prescribed by SEBI, if any.

(v). The Project Manager shall provide the Investment Manager details of transactions carried

out between itself and its associates, and disclose any conflict of interest in such cases to the

Investment Manager, in accordance with the InvIT Regulations.

(vi). The Project Manager shall intimate the Trustee prior to any change in control of the Project

Manager to enable the Trustee to seek approval from the relevant authority in accordance

with the concession agreement, other project documents pertaining to HREL and the InvIT

Regulations, as applicable.

(vii). The Project Manager shall provide to the Trustee and Investment Manager, all information

that may be necessary for each of them to maintain the records of the InvIT and as may be

required for making submissions to SEBI or other governmental authority.

(viii). The duties of Project Manager shall also include the following:

(a). supervision of revenue streams of the project and providing the necessary

certification as may be required under applicable laws, including the InvIT

Regulations;

(b). execution and completion of activities in relation to the project in accordance with

and in the manner contemplated in any agreement entered into by the Project SPV, in

this regard;

(c). exercise diligence and vigilance in carrying out its duties and protecting the project;

(d). keeping the Investment Manager informed on all matters which have a material

bearing on the operations of the project;

(e). liaising with governmental authorities in respect of its obligations under the Project

Implementation and Management Agreements and the project agreements;

(f). take appropriate measures to mitigate the risks which may be encountered by the

IL&FS Transportation Trust in respect of the project;

(g). keep proper records for actions taken in respect of the project;

(h). complying with the instructions of the Investment Manager and the Trustee and the

provisions of the InvIT Regulations; and

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(i). provide such information to the Investment Manager as may be required, as per the

format and at such periodicity as may be specified by the Investment Manager.

2. Scope of Services:

The Project Manager shall operate, maintain and manage the projects and provide such services to the

Project SPVs as per the terms and conditions of the project agreements and perform obligations as

stipulated therein.

3. Deficiency in Services:

(i). The Trustee may, suspend all or part of the project implementation and management fees

payable to the Project Manager, if the Project Manager fails to perform any of its obligations

under the Project Implementation and Management Agreement, including carrying out the

services under the project agreements (collectively, the “Deficiency in Services”).

(ii). The notice of suspension shall specify the nature of the failure and shall request the Project

Manager to remedy such failures within a period as mentioned in the Project Implementation

and Management Agreement.

(iii). If the Project Manager remedies the Deficiency in Services, the Trustee will pay to the

Project Manager the fees that were suspended. Further, no interest shall be payable by the

Trustee to the Project Manager, on the suspended fees.

4. Indemnity:

(i). The Project Manager shall indemnify the Trustee, the Investment Manager and their respective

directors, employees, officers and the IL&FS Transportation Trust (the “Indemnified

Parties”) against any direct claims, losses, costs, damages, liabilities and expenses, including

legal fees incurred or suffered by the Indemnified Parties in connection with any breach of the

Project Implementation and Management Agreements or violation the InvIT Regulations or

other applicable laws by the Project Manager.

(ii). The aggregate liability of the Project Manager for indemnity claims made hereunder in a

particular financial year shall not exceed 50% of the fees paid or payable to the Project

Manager for the said financial year in terms of the Project Implementation and Management

Agreement.

(iii). The Indemnified Parties shall not be entitled to benefits of a loss which has already been

recovered by the Indemnified Parties under the other agreements. Moreover, the Investment

Manager will not be entitled to make a claim in respect of a loss covered under the Project

Implementation and Management Agreement, in the event a claim by a Project SPVs for the

same loss is outstanding under the respective operations and maintenance agreement or the

Services Agreement of that particular Project SPV.

(iv). If the Project Manager has made a payment to the Indemnified Parties in relation to any claim

and the Indemnified Parties are entitled to recover (whether by insurance, payment, discount,

credit, relief or otherwise) from a third party, such sum which indemnifies or compensates the

Indemnified Parties in respect of the liability or the loss, the Indemnified Parties shall notify

the Project Manager of this and on receipt of the amount from the third party, pay back to the

Project Manager the amount equal to the amount recovered from the third party, subject to a

maximum of the amount paid by the Project Manager to the Indemnified Parties in relation to

the claim.

5. Termination:

The termination of the Project Implementation and Management Agreement can take place as under:

(i). The Project Implementation and Management Agreement shall remain effective, unless

terminated by the parties in accordance with the provisions hereto or extended by mutual

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consent expressed in writing by the parties, for the length of the concession agreements of the

respective Project SPVs (“Validity Period”).

(ii). Prior to the expiry of the Validity Period, the Project Implementation and Management

Agreements may be terminated:

(a). by the Investment Manager, after consultation with the Trustee, may delivery of a

written notice to the Project Manager and in accordance with the InvIT Regulations;

or

(b). by any party by delivery of a written notice to the other party upon the bankruptcy of

such other Party or if winding up or liquidation proceedings are commenced against

such other Party (and such proceedings persist for a period of more than three

months) prior to the expiry of the Validity Period.

(C). Services Agreements

Each of the Project SPVs will enter into a services agreement with the Sponsor and the Investment

Manager (as a confirming party) in relation to the appointment of the Sponsor for providing certain

specified services to the each of the Project SPVs (the “Services Agreement”).

1. Scope of services:

The scope of services provided by the Sponsor to each of the Project SPVs includes the following:

(i). Accounting services;

(ii). Secretarial services;

(iii). Audit and tax services;

(iv). Administrative services pertaining to human resources, liaising with the lenders and

compliance with the terms of the loan/ transaction documents; and

(v). Information technology services, including providing the necessary software and

infrastructure.

Further, the Sponsor shall also provide such other services as are incidental to the above or as may be

agreed to among the parties.

2. Fees:

The Sponsor shall develop, train and maintain a service team for providing the aforementioned services

to each of the Project SPVs. For the services to be rendered by the Sponsor in terms of each of the

Services Agreement, each of the Project SPVs shall pay the Sponsor as follows:

Name of the Project

SPV

Fee payable

(in Rs.)

HREL 2.63 million per annum (the “Base Fees”), exclusive of applicable taxes.

The Base Fee shall be subject to an escalation at the rate of 5% per annum.

SBHL 2.99 million per annum (the “Base Fees”), exclusive of applicable taxes.


JRPICL 9.72 million per annum (the “Base Fees”), exclusive of applicable taxes.

The Base Fee shall be subject to an escalation at the rate of 2.5% per

annum.

NKEL 2.00 million per annum (the “Base Fees”), exclusive of applicable taxes.


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exclusive of all or any taxes, duties and other statutory levies, if any, payable thereon. The Project

SPVs shall bear any service tax and other applicable taxes payable on the fees and any other payments

made to the Sponsor. The Sponsor shall be liable to pay income tax on the fees received and payments

and the Project SPVs shall not be required to pay the same.

3. Term of the Services Agreements:

The Services Agreements are effective from date on which, the Trustee (acting as the Trustee to the

IL&FS Transportation Trust), acquires the Project SPVs, pursuant to the share purchase agreements

(the “Effective Date”) and unless terminated by the Project SPVs or the Sponsor or extended by

mutual consent expressed in writing by the parties, shall remain in force from the Effective Date until

the termination or expiry of the terms of the concession agreements pertaining to each of the Project

SPVs.

4. Termination:

Prior to the expiry of its validity period, the Services Agreements may be terminated by:

(i). by either Party by delivery of 6 (six) months written notice, at any time after 2 (two) years

from the Effective Date; or

(ii). at any time by the Company by delivery of a written notice to the service provider in case of a

Material Breach of the Services Agreement by service provider where such Material Breach

has not been cured within 45 days of receipt by service provider of a prior written notice

requiring such cure; or

(iii). at any time by either Party by delivery of a written notice to the other Party upon the

bankruptcy of such other Party or if winding up or liquidation proceedings are commenced

against such other Party (and such proceedings persist for a period of more than 3 (three)

months).

5. Indemnity:

Notwithstanding the termination provisions set out above, the Services Agreement shall automatically

part) in respect of the Loss which is the subject of the same claim, the Indemnified Party shall (i)

promptly notify the Indemnifying Party of the fact and provide such information as the Indemnifying

Party may reasonably require; (ii) take all reasonable steps or proceedings as the Indemnifying Party

may require to enforce such right; and (iii) pay to the Indemnifying Party as soon as practicable after

receipt an amount equal to the amount recovered from the third party, net of expenses incurred in

pursuing such proceedings, subject to a maximum of the amount paid by the Indemnifying Party to the

Indemnified Party in discharge of the said Loss.

(D). Agreement for Claims on Cost and Time Overruns

On October 13, 2016, one of the Project SPVs, JRPICL, entered into an agreement for claims on cost

and time overruns (the “Agreement”) with the Sponsor in relation to the assignment of certain claims

made by JRPICL on the Government of Jharkhand (the “GoJ”) for recovery of certain additional costs

aggregating to Rs. 1,064,775,028 incurred by JRPICL with respect to the RPR II Project (which were

due to the delay in handing over encumbrance-free right of way by the GoJ), in terms of the relevant

concession agreement (the “Claim”) in favour of the Sponsor (the “Assignment”). The Claim has been

approved by the GoJ through its letter dated March 30, 2016.

In terms of the Agreement, JRPICL and the Sponsor have agreed that JRPICL will, subject to the terms

of the relevant concession agreement and the escrow agreement, adjust its receivables in relation to the

Claim against the loans advanced by the Sponsor (the “Sponsor Loan”) and that the Sponsor will

adjust such receivables against the Claim assigned and thereby reduce the Sponsor Loan to JRPICL by

the amount of such Claim. The parties have further agreed that in terms of the Assignment, the Sponsor

shall also assume all the obligations in relation to the Claim.

(E). Share Purchase Agreements

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The Trustee (acting in its capacity as the trustee of the IL&FS Transportation Trust) will acquire the

entire equity share capital of each of the Project SPVs through the execution of the following Share

Purchase Agreements:

(i). share purchase agreement dated [●] entered into amongst the Sponsor, the Trustee (acting in

its capacity as the trustee of the IL&FS Transportation Trust), the Investment Manager (acting

in its capacity as the investment manager of the IL&FS Transportation Trust) and HREL (the

“HREL SPA”) for the purchase of [●] equity shares in HREL, representing 100% of the

equity share capital of HREL (on a fully diluted basis), from the Sponsor. Under the terms of

the HREL SPA, the aggregate consideration payable by the Trustee is Rs. [●] million;

(ii). share purchase agreement dated [●] entered into among the Sponsor, the Trustee (acting in its

capacity as the trustee of the IL&FS Transportation Trust), the Investment Manager (acting in

its capacity as the investment manager of the IL&FS Transportation Trust) and SBHL (the

“SBHL SPA”) for the purchase of [●] equity shares in SBHL (on a fully diluted basis), from

the Sponsor. Under the terms of the SBHL SPA, the aggregate consideration payable by the

IL&FS Transportation Trust is Rs. [●] million;

(iii). share purchase agreement dated [●] entered into among Sponsor, the Trustee (acting in its

capacity as the trustee of the IL&FS Transportation Trust), the Investment Manager (acting in

its capacity as the investment manager of the IL&FS Transportation Trust) and JRPICL (the

“JRPICL SPA”), for the purchase of [●] equity shares in JRPICL (on a fully diluted basis),

from the Sponsor. Under the terms of the JRPICL SPA, the aggregate consideration payable

by the IL&FS Transportation Trust is Rs. [●] million; and

(iv). share purchase agreement dated [●] entered into among the Sponsor, the Trustee (acting

in its capacity as the trustee of the IL&FS Transportation Trust), the Investment Manager

(acting in its capacity as the investment manager of the IL&FS Transportation Trust) and

NKEL (the “NKEL SPA”) for the purchase of [●] equity shares in NKEL (on a fully diluted

basis), from the Sponsor. Under the terms of the NKEL SPA, the aggregate consideration

payable by the IL&FS Transportation Trust is Rs. [●] million.

The HREL SPA, the SBHL SPA, the JRPICL SPA and the NKEL SPA shall be collectively referred to

as the “Share Purchase Agreements”.

Under the Share Purchase Agreements, the Sponsor has agreed to provide certain representations and

warranties (subject to the disclosure letter) to the Trustee (acting in its capacity as the trustee of the

IL&FS Transportation Trust) and to the Investment Manager (acting in its capacity as the investment

manager of the IL&FS Transportation Trust) collectively, the “Investor Parties”. These include the

following representations and warranties:

(i). the equity shares of each of the Project SPVs being sold by the Sponsor (the “Sale Shares”)

represent 100% of the issued and outstanding equity shares of each of the Project SPVs on a

fully diluted basis;

(ii). the Sponsor is the legal and beneficial owner of the equity shares of each of the Project SPVs,

free from all encumbrances and has the right to exercise all voting and other rights over such

Sale Shares;

(iii). the accounts of each of the Project SPVs have been prepared in accordance with the relevant

accounting standards;

(iv). each of the Project SPVs has filed or caused to be filed all tax returns in a timely manner and

has paid all taxes, unless the same has been disputed by such Project SPV;

(v). each of the Project SPVs has been granted and holds all approvals, permits, authorisations,

consents and licenses material for carrying on its business and that each of the Project SPVs

has complied with and not breached the terms of any conditions of such approvals, permits,

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authorisations, consents and licenses, except such breach that will not result in a material

adverse effect (as defined in the Share Purchase Agreements);

(vi). each of the Project SPVs has valid leasehold interests in the immovable properties leased or

sub-leased to it, and has valid authority to occupy/use on leave and license basis the

immovable properties taken by it on a leave and license basis;

(vii). each of the Project SPVs has complied, in all material aspects, with all applicable laws and

there is no material default or breach under any of the material contracts, defined under the

Share Purchase Agreements, entered into by the each of the Project SPVs;

(viii). all material insurable risks in respect of the business of each of the Project SPVs are covered

by appropriate insurance policies and amounts of coverage provided are usual and customary

in relation to such business of each of the Project SPVs. There is no claim by any of the

Project SPVs pending under any insurance policies and all premiums due and payable under

all insurance policies have been paid; and

(ix). all environmental permits required for the operation of the business of each of the Project

SPVs have been obtained and all material terms thereto have been complied with.

In terms of the Share Purchase Agreements, certain indemnities will be provided by the Sponsor to the

Investor. Such indemnities indemnify the Investor Parties from and against all losses which directly

arise from a breach of any of the representations and warranties or covenants made by the Sponsor

under the Share Purchase Agreements, including in relation to the Project SPVs. Further, the Sponsor

has agreed to indemnify the Investor against any lawsuit or other action instituted against it by any third

party with respect to a matter subject to indemnity under the respective Share Purchase Agreements.

Certain other terms of the Share Purchase Agreements:

(i). Each of the Project SPVs have agreed to, subject to the terms of the concession agreements

and the agreements, assign any claims to recover any costs incurred, in relation to any time or

cost overruns with regard to the project relating to a period prior to Closing Date (as hereafter

defined) to the Sponsor, as specified.

(ii). The Sponsor has agreed to, amongst others; providing funding support to JRPICL in relation

to the proposed issuance of debt securities by JRPICL.

The indemnity provided by the Sponsor under the Share Purchase Agreements is subject to certain

terms, including the following:

(i). the Sponsor shall not be liable for any claim made against it if the notice of claim is not made

within the following time limits:

(a). unlimited time period in relation to the indemnity claims arising out of:

a breach of warranties relating to title to, and the transfer of the Sale Shares;

a breach of warranties relating to due incorporation, due authority and due

execution of the Share Purchase Agreement by the Sponsor; and

certain other identified instances pertaining to litigation involving the Project

SPVs.

(b). a period of three years from the date on which 100% of the equity shares of each of

the Project SPVs is acquired by the Trustee (acting in its capacity as the trustee of the

IL&FS Transportation Trust) (the “Closing Date”) in respect of liability arising out

of the observations made by the Comptroller and Auditor General on the bonus

annuity paid by NHAL to HREL;

(c). a time period of seven years from the Closing Date in relation to indemnity claims

arising out of a breach of certain other identified tax matters and warranties; and

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(d). a period of three years from the Closing Date in relation to indemnity claims arising

out of certain other identified matters, as well as those arising from a breach of any

other representation, warranty or covenant of the Sponsor.

(ii). other than in relation to breach of representations and covenants pertaining to paragraphs

(1)(a) and (1)(b) above, the Sponsor’s aggregate liability (whether pursuant to an indemnity

payment of otherwise) is limited to 25% of the consideration paid under each of the Share

Purchase Agreements. Further, the Sponsor shall not be liable in respect of any claim unless it

exceeds Rs. 1,500,000 (the “SPA Eligible Claim”) and shall also not be liable for any

indemnification obligation unless the aggregate value of the SPA Eligible Claims exceeds Rs.

5,000,000. However, in the event the aggregate value of the SPA Eligible Claims exceeds Rs.

5,000,000, all claims, irrespective of their value, shall constitute SPA Eligible Claims. The

consideration refers to the consideration to be paid for the purchase of the Sale Shares of each

of the Project SPVs by the Trustee (acting in its capacity as the trustee of the IL&FS

Transportation Trust) under each of the Share Purchase Agreements;

(iii). if the Sponsor has made a payment to Trustee in relation to any claim and the Investor Parties

are entitled to recover (whether by insurance, payment, discount, credit, relief or otherwise)

from a third party such sum which indemnifies or compensates the Investor Parties in respect

of the liability or the loss, Investor Parties shall notify the Sponsor of this and on receipt of the

amount from the third party, pay back to the Sponsor the amount equal to the amount

recovered from the third party, as specified subject to a maximum of the amount paid by the

Sponsor to the Trustee in relation to the claim; and

(iv). the Sponsor shall not have any liability in respect of any claim arising from any change of law

or regulation of a governmental authority or any change in the rates of taxation.

(F). Amendment to the Operations and Maintenance Contracts

See “Business – Key Terms of the Project Agreements” on page 45 for a description of the amendment

to the operations and maintenance contracts.

(G). ROFO Deed

The proposed key terms of the ROFO Deed are provided below:

For the purpose of the Deed of Right of First Offer (“ROFO Deed”):

(i). “Controlling Interest” shall mean equity shares representing at least 51% of the equity share

capital of an Eligible Project Asset or an SPV, as the case may be, on a fully diluted basis.

(ii). “Eligible Project Assets” means the SPVs, which (i) satisfy the requirements set out in the

definition of “SPV” under the Securities and Exchange Board of India (Infrastructure

Investment Trust) Regulations, 2014; (ii) are operational and revenue generating; and (iii) in

which the Sponsor proposes to divest Controlling Interest. It is clarified that in the event the

Sponsor holds road infrastructure assets directly (and not through a project company), then

the divestment of such assets may be offered to the Investor through a business transfer, court

scheme or an asset transfer, as may be mutually decided by the Parties.

(iii). “Investor” means the Trustee and the Investment Manager collectively.

(iv). “InvIT Listing” means the listing and admission to trading of the units of the IL&FS

Transportation Trust on the BSE and the NSE.

(v). “Pipeline Projects”means any of Baleshwar Kharagpur Expressway Limited; Khed Sinnar

Expressway Limited; Pune Sholapur Road Development Company Limited; and Chenani

Nashri Tunnelway Limited.

(vi). “Right of First Offer” means a right of first offer with regard to any proposed sale of the

Eligible Project Assets granted pursuant to and in accordance with the terms of the ROFO

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Deed.

(vii). “SPV(s)” means the present and future subsidiaries of the Sponsor (excluding the Project

SPVs), involved in road infrastructure business.

1. Right of First Offer:

The Sponsor will grant the Right of First Offer (“ROFO”) and such other rights to the Investor in

respect of Eligible Project Assets, in accordance with the terms and conditions set out below.

(A). Proposed sale of equity shares in an Eligible Project Asset by the Sponsor

(i). The Sponsor undertakes that it shall make an irrevocable invitation to offer to the

Investor for the acquisition of Controlling Interest in an Eligible Project Asset to the

Investor in writing by specifying (a) the number of equity shares in Eligible Project

Asset held by the Sponsor; (b) the number of equity shares in the Eligible Project

Asset proposed to be disposed of by the Sponsor (which shall not be less than the

Controlling Interest in such Eligible Project Asset), (c) the Sponsor’s right or

obligation, if any, to own up to the Minimum Shareholding Requirement, and (d)

any other terms and conditions in connection therewith (the “Eligible Project Asset

Offer Shares” and such written invitation to offer, the “Intimation”). The Sponsor

further undertakes to unconditionally co-operate with, and assist the Investor by

providing such details and information in relation to such Eligible Project Asset in

writing, as may be necessary for enabling the Investor to have the valuation

undertaken in accordance with the InvIT Regulations, within a period of 7 days (or

such extended period, as may be mutually agreed amongst the Parties) from the date

of the Intimation (the “Information Intimation”).

(ii). In the event the Investor is interested in the acquisition of the Eligible Project Asset

Offer Shares, the Investor shall communicate such interest in writing to the Sponsor

and may offer to acquire all (and not less than all) of the Eligible Project Asset Offer

Shares at a price per Eligible Project Asset Offer Share and on terms specified by

the Investor (the “Eligible Project Asset Offer Price and Terms”) by delivering an

offer letter to the Sponsor (the “Eligible Project Asset Offer Letter”) within a

period of 45 days (or such extended period, as may be mutually agreed amongst the

Parties) from the date of receipt of the Information Intimation (the “Eligible

Project Asset Invitation Period”).

(B). Acceptance of the Eligible Project Asset Offer Price and Terms by the Sponsor

(i). The Sponsor may accept the Eligible Project Asset Offer Price and Terms, by

delivering a notice of acceptance to the Investor (the “ROFO Acceptance Notice”)

within a period of 30 days (or such extended period, as may be mutually agreed

amongst the Parties) from the date of receipt of the Eligible Project Asset Offer

Letter by the Sponsor (the “ROFO Acceptance Period”).

(ii). If the ROFO Acceptance Notice is received by the Investor during the ROFO

Acceptance Period, the necessary due diligence and the execution of the definitive

agreements (such as share purchase agreements and other related documentation)

for the sale of the Eligible Project Asset Offer Shares, free and clear of any pre-

emptive rights, liens, mortgages, charges, pledges, trusts or any other encumbrances

or transfer restrictions, both present and future (collectively, the “Encumbrances”)

in accordance with the Eligible Project Asset Offer Price and Terms, shall be

completed within 60 days (or such extended period, as may be mutually agreed

amongst the Parties) from the receipt of the ROFO Acceptance Notice by the

Investor (the “Definitive Agreement Period”).

(iii). In the event Parties fail to execute the definitive agreements within the Definitive

Agreement Period, the chairman of the Investment Manager (acting on behalf of the

Investor) and the chairman of the Sponsor shall negotiate in good faith to resolve

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any issues and execute the definitive agreements within a period of 15 days from

the expiry of the Definitive Agreement Period (the “Extended Definitive

Agreement Period”).

(iv). The sale of the Eligible Project Asset Offer Shares, free and clear of any

Encumbrances shall be completed within the time specified in such definitive

agreements (the “Eligible Project Asset Acquisition Period”).

(C). Non-Acceptance of the Eligible Project Asset Offer Price and Terms by the Sponsor and/ or

failure to execute definitive agreements

(i). In an event:

(a). no ROFO Acceptance Notice from the Sponsor is received by the Investor

during the ROFO Acceptance Period or, the Sponsor, by way of a written

intimation to the Investor, declines to accept the offer set out in the

Eligible Project Asset Offer Letter (collectively, the “Sponsor Non-

Acceptance Notice”); or

(b). the Sponsor accepts the Eligible Project Asset Offer Price and Terms from

the Investor, but the parties fail to execute the definitive agreements for the

purchase of the Eligible Project Asset Offer Shares within the Extended

Definitive Agreement Period;

then the Sponsor shall be entitled to sell all (but not less than all) Eligible Project

Asset Offer Shares to any person (the “Third Party Sale”), (i) in case

Paragraph(C)(i)(a) is applicable, within six months (or such other extended period

as may be mutually agreed by the Parties) from the end of the ROFO Acceptance

Period (the “Third Party Sale Period 1”); and (ii) in case Paragraph(C)(i)(b) is

applicable, within six months (or such other extended period as may be mutually

agreed by the Parties) from the expiry of the Extended Definitive Agreement Period

(the “Third Party Sale Period 2”).

The Sponsor shall be required to undertake the Third Party Sale at an equity value

which is at least 10% higher than that, and on terms and conditions that are similar

to, those set out in the Eligible Project Asset Offer Letter.

(ii). If, during the subsistence of the Third Party Sale Period 1 or the Third Party Sale

Period 2, the Sponsor receives an offer from a person for acquisition of the Eligible

Project Asset Offer Shares at a price which is higher than the price offered by the

Investor in terms of the Eligible Project Asset Offer Letter but within 10% equity

value of the price offered by the Investor in terms of the Eligible Project Asset Offer

Letter (the “Third Party Offer Notice”), it shall deliver a notice to the Investor in

terms of Paragraph(C)(i)(a) or Paragraph(C)(i)(b) (“Last Look Notice”) of its

intent to sell the Eligible Project Asset Offer Shares to such person specifying the

price per Eligible Project Asset Offer Share (which shall not be higher than the

price offered by the third party in terms of the Third Party Offer Notice) and on

terms specified by the Sponsor and which are similar to those set out in the Third

Party Offer Notice (“Last Look Price and Terms”) within 45 days (or such

extended period, as may be mutually agreed amongst the Parties) of the receipt of

the Third Party Offer Notice and making an offer to the Investor to acquire the

Eligible Project Asset Offer Shares on the Last Look Price and Terms. The Investor

shall be entitled to notify the Sponsor of its intent to purchase all of the Eligible

Project Asset Offer Shares at the Last Look Price and Terms within 7 Business Days

(or such extended period, as may be mutually agreed amongst the Parties) of receipt

by the Investor of the Last Look Notice from the Sponsor (the “Last Look

Acceptance Notice”).

(iii). If the Last Look Notice is delivered to the Investor during the Third Party Sale

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Period 1, and the Investor accepts the offer to purchase the Eligible Project Asset

Offer Shares, the necessary due diligence and the execution of the definitive

agreements (such as share purchase agreements and other related documentation)

for the sale of the Eligible Project Asset Offer Shares, free and clear of any

Encumbrances in accordance with the Last Look Price and Terms, shall be

completed within 60 days (or such extended period, as may be mutually agreed

amongst the Parties) from the date of issuance of the Last Look Acceptance Notice

(the “Last Look Definitive Agreement Period 1”).

In the event Parties fail to execute the definitive agreements within the Last Look

Definitive Agreement Period 1, the chairman of the Investment Manager (acting on

behalf of the Investor) and the chairman of the Sponsor shall negotiate in good faith

to resolve any issues and execute the definitive agreements within a period of 15

days from the expiry of the Last Look Definitive Agreement Period (the “Extended

Last Look Definitive Agreement Period 1”).

The sale of the Eligible Project Asset Offer Shares, free and clear of any

Encumbrances shall be completed within the time specified in such definitive

agreements (the “Last Look Eligible Project Asset Acquisition Period 1”).

(iv). In the event Parties fail to execute the definitive agreements pursuant to the Last

Look Acceptance Notice issued by the Investor pursuant to Paragraph (C)(iii)

within the Extended Last Look Definitive Agreement Period 1, the Sponsor shall

have the right (but not an obligation) to sell all (but not less than all) of the Eligible

Project Asset Offer Shares to any person at a price which is equal to or higher than

the price per Eligible Project Asset Offer Share as mentioned in the Last Look

Notice (the “Alternative Last Look Third Party Sale 1”) within six months (or

such other extended period as may be mutually agreed by the Parties) from the

expiry of the Last Look Definitive Period 1 (the “Alternative Last Look Third

Party Sale Period 1”). It is clarified that the Alternative Last Look Third Party Sale

1 will be undertaken on terms which are not better from the perspective of the third

party than the terms that were contemplated pursuant to the negotiation of the

definitive agreements amongst the Parties in terms of Paragraph (C)(iii).

(v). If the Last Look Notice is delivered to the Investor during the Third Party Sale

Period 2, and the Investor accepts the offer to purchase the Eligible Project Asset

Offer Shares, the execution of the definitive agreements (such as share purchase

agreements and other related documentation) for the sale of the Eligible Project

Asset Offer Shares, free and clear of any Encumbrances in accordance with the Last

Look Price and Terms, shall be completed within 5 days (or such extended period,

as may be mutually agreed amongst the Parties) from the date of issuance of the

Last Look Acceptance Notice (the “Last Look Definitive Agreement Period 2”).

The sale of the Eligible Project Asset Offer Shares, free and clear of any

encumbrances shall be completed within the time specified in such definitive

agreements (the “Last Look Eligible Project Asset Acquisition Period 2”).

(vi). In the event Parties fail to execute the definitive agreements pursuant to the Last

Look Acceptance Notice issued by the Investor within the Last Look Definitive

Agreement Period 2, the Sponsor shall have the right (but not the obligation) to sell

all (but not less than all) of the Eligible Project Asset Offer Shares to any person at

a price which is equal to or higher than the price per Eligible Project Asset Offer

Share as mentioned in the Last Look Notice (the “Alternative Last Look Third

Party Sale 2”) within six months (or such other extended period as may be

mutually agreed by the Parties) from the expiry of the Last Look Definitive Period

2 (the “Alternative Last Look Third Party Sale Period 2”). It is clarified that the

Alternative Last Look Third Party Sale will be undertaken on terms which are not

better from the perspective of the third party than the terms that were contemplated

pursuant to the negotiation of the definitive agreements amongst the parties in terms

of Paragraph (C)(i)(b) and Paragraph (C)(v).

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(vii). In the event: the Investor (a) declines to accept the offer made through the Last

Look Notice; or (b) fails to respond to the offer made through the Last Look Notice

within time period agreed amongst the Parties (collectively, the “Last Look

Rejection Notice”), then the Sponsor shall be entitled to sell all (but not less than

all) Eligible Project Asset Offer Shares to any person at the Last Look Price and

Terms (the “Last Look Third Party Sale”) within six months (or such other

extended period as may be mutually agreed by the Parties) from the Last Look

Rejection Notice (the “Last Look Third Party Sale Period”).

(viii). In the event (a) the Sponsor does not receive a Third Party Offer Notice during the

subsistence of the Third Party Sale Period 1 or the Third Party Sale Period 2 and

fails to consummate the Third Party Sale within the Third Party Sale Period 1 or the

Third Party Sale Period 2, as applicable; or (b) the Sponsor fails to consummate the

Last Look Third Party Sale within the Last Look Third Party Sale Period; (c) the

Sponsor fails to consummate the Alternative Last Look Third Party Sale 1 within

the Alternative Last Look Third Party Sale Period 1; or (d) the Sponsor fails to

consummate the Alternative Last Look Third Party Sale 2 within the Alternative

Last Look Third Party Sale Period 2, the Sponsor shall be required to follow the

procedure set out in Paragraphs (A) and (D) if it desires to subsequently sell the

Eligible Project Asset Offer Shares.

(D). Absence of Offer by the Investor and certain other events

(i). In an event:

(a). the Investor (i) does not offer to purchase the Eligible Project Asset Offer

Shares or notifies the Sponsor of its intent not to make an offer to purchase

the Eligible Project Asset Offer Shares (the “ROFO Non-Acceptance

Notice”), within 45 days (or such extended period, as may be mutually

agreed amongst the Parties) from the expiry of the Eligible Project Asset

Invitation Period; or

(b). Parties have executed the definitive agreements for the acquisition of the

Eligible Project Asset Offer Shares and the Investor fails to complete the

acquisition of the Eligible Project Asset Offer Shares within the time

period specified in the definitive agreements,

then without prejudice to the other rights of the Sponsor, the Sponsor shall have the

right (but not the obligation) to sell all (but not less than all) of the Eligible Project

Asset Offer Shares to any person without any restriction as to price or terms (the

“Subsequent Third Party Sale”) within a period of six months (or such extended

period, as may be mutually agreed amongst the Parties) from the date of receipt of

the ROFO Non-Acceptance Notice or the expiry of the time period specified in the

definitive agreements, as applicable (the “Subsequent Third Party Sale Period”).

(ii). In the event the Sponsor does not consummate the Subsequent Third Party Sale

within the Subsequent Third Party Sale Period, the Sponsor shall be required to

follow the procedure set out in Paragraphs (A) to (D) above if it desires to

subsequently sell the Eligible Project Asset Offer Shares.

2. Undertakings by the Sponsor:

The Sponsor undertakes that:

(i). it shall be obligated to make an irrevocable invitation to offer to the Investor for acquisition of

the entire equity share capital of at least one of the Pipeline Projects by March 31, 2020;

(ii). it shall not transfer any equity shareholding in an Eligible Project Assets to any person, other

than as specified. Further, in terms of the ROFO Deed, the Sponsor is entitled to make such

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transfers to its affiliate companies (as defined in the ROFO Deed). In the event of such

transfers, the Sponsor shall procure that the relevant affiliate company to comply with the

terms of the ROFO Deed;

(iii). in relation to the Eligible Project Assets where the Sponsor is the 100% equity shareholder, in

the event the Sponsor disposes of a minority stake in such Eligible Project Assets (which

cannot, in any event, be more than 49% of the equity share capital of such Eligible Project

Assets) to any person post the InvIT Listing (the “Minority Shareholder”), the Sponsor will

ensure that the definitive agreement entered into with such Minority Shareholder will be in

compliance with the requirements of the InvIT Regulations. Further, in the event the Sponsor

proposes to divest its Controlling Interest in such Eligible Project Asset (by making an

invitation to offer to the Investor), it will procure the Minority Shareholder to make an

invitation to offer in respect of its stake in the Eligible Project Asset to the Investor. In the

event the Minority Shareholder does not accept the offer, if any, made by the Investor in

relation to the Minority Shareholder’s stake in the Eligible Project Asset, the same shall not

preclude the Sponsor from accepting the Investor’s offer, if any, in relation to the acquisition

of the Controlling Interest in the Eligible Project Asset;

(iv). in relation to existing Eligible Project Assets where the Sponsor owns Controlling Interest,

when the Sponsor proposes to divest its Controlling Interest in such Eligible Project Asset (by

making an invitation to offer to the Investor), it will procure the other shareholder(s), on a best

efforts basis, to make an invitation to offer in respect of its stake in the Eligible Project Asset

to the Investor. Further, in the event such third party refuses to make an invitation to offer to

the Investor, the Sponsor will, on a best effort basis, procure such third party to relinquish any

special rights (rights more favourable in respect of the relevant Eligible Project Asset than

those available to the Investor) and abide by such other terms in accordance with the InvIT

Regulations. Moreover, nothing this clause shall preclude the Sponsor from accepting the

Investor’s offer, if any, in relation to the acquisition of the Sponsor’s Controlling Interest in

the Eligible Project Asset;

(v). in relation to any future Eligible Project Assets which the Sponsor may be awarded along with

third parties, the Sponsor’s obligation in terms of ROFO Deed to make an invitation to offer

to the Investor will be restricted to its Controlling Interest in such Eligible Project Asset.

Further, the Sponsor shall not provide a right of first offer or any such similar rights to such

third party investor in respect of its Controlling Interest in such Eligible Project Asset.

Further, the Sponsor will ensure that the definitive agreement entered into with the other

shareholder(s) will be in compliance with the requirements of the InvIT Regulations; and

(vi). it shall exercise its vote as a Unitholder of the IL&FS Transportation Trust in accordance with

the terms of the ROFO Deed.

3. Other terms and conditions:

(i). In terms of the ROFO Deed, the Sponsor is not prohibited from disposing of such stake in an

SPV which would not cause the Sponsor’s shareholding in such SPV to fall below the

Controlling Interest to a Minority Shareholder post the InvIT Listing, as specified.

(ii). Notwithstanding anything set out above, the ROFO shall not apply in the event any authority

or the lenders of the Eligible Project Asset substitute or replace (i) the Eligible Project Asset

as the concessionaire of the relevant road infrastructure project; (ii) the Sponsor as the sponsor

or the owner of the Eligible Project Asset, pursuant to, and in accordance with, the terms of

the concession agreement or financing agreement, as the case may be.

(iii). The parties to ROFO Deed further agree and confirm that if after the exercise of the right of

the Investor as set out under the clauses of the ROFO Deed, the IL&FS Transportation Trust

does not hold 100% of the equity shares in such Eligible Project Asset, the Parties shall enter

into, and (where applicable), the Sponsor shall procure any Minority Shareholder to enter into,

a shareholders’ agreement containing customary rights and obligations in such Eligible

Project Asset, including but not limited to provisions on right of first offer, right of first

refusal, right to tag along, right to drag along and put and call options as may be mutually

132

agreeable, provided that each of the independent directors of the Investment Manager

unanimously approve the rights and obligations of the IL&FS Transportation Trust under such

agreement.

4. Indemnity:

(i). The Sponsor hereby agrees to indemnify, defend and hold harmless the Investor and their

respective affiliates, directors, officers, employees, agents, authorized representatives,

successors and permitted assigns (each, an “Indemnified Party” and together “Indemnified

Parties”) from and against any and all direct losses, claims, liabilities, damages, proceedings,

penalties, judgments and expenses (including reasonable fees, disbursements and other charges

of counsel) which may be suffered or incurred by an Indemnified Party directly or indirectly,

in connection with a breach or alleged breach of any of the representations, warranties and

covenants of the Sponsor under the ROFO Deed (collectively, the “Loss”).

(ii). Where the Indemnifying Party has made a payment to the Indemnified Party in relation to a

claim under the relevant clauses of the ROFO Deed and the Indemnified Party is entitled to

recover (whether by insurance, payment, discount, credit, relief or otherwise) from a third

party a sum which indemnifies or compensates the Indemnified Party (in whole or in part) in

respect of the Loss which is the subject of the same claim, the Indemnified Party shall (i)

promptly notify the Indemnifying Party of the fact and provide such information as the

Indemnifying Party may reasonably require; (ii) take all reasonable steps or proceedings as the

Indemnifying Party may require to enforce such right; and (iii) pay to the Indemnifying Party

as soon as practicable after receipt an amount equal to the amount recovered from the third

party, net of expenses incurred in pursuing such proceedings, subject to a maximum of the

amount paid by the Indemnifying Party to the Indemnified Party in discharge of the said Loss.

5. Term of the ROFO Deed:

The ROFO Deed shall remain in force for a period of 10 years from the date of the InvIT Listing

unless otherwise extended by mutual consent of the Parties in writing or terminated in accordance with

the relevant clauses of the ROFO Deed.

6. Termination:

The ROFO Deed may only be terminated as follows:

(i). by mutual consent of the parties in writing; or

(ii). by the Sponsor in writing, in the event Investment Manager and/ or any affiliate company or

any other entity designated by the Sponsor ceases to be the investment manager of the IL&FS

Transportation Trust and a period of 12 months have lapsed since the date of such cessation;

or

(iii). if the IL&FS Tranportation Trust ceases to be listed on the BSE, the NSE or any other

recognized stock exchanges.

(H). Debenture Subscription Agreements

Each of JRPICL, HREL and SBHL will issue Debentures to the Trustee (acting in its capacity as the

trustee of the IL&FS Transportation Trust) in accordance with the debenture subscription agreements

(the “Debenture Subscription Agreements”). The relevant details in relation to the Debentures are set

out below:

1. For the purpose of the Debenture Subscription Agreement:

(i). “Early Redemption Date” means any date prior to the Payment Date on which the non-

convertible debentures are, subject to law, required to be redeemed in accordance with the

Debenture Subscription Agreement pursuant to an occurrence of an event of default or as set

out in the Debenture Subscription Agreement.

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(ii). “Nominal Value” means Rs. 100, being the nominal value of each Debenture.

2. Subscription to debentures:

Name of the Project

SPV

Number of Debentures

to be issued to the

Trustee

Aggregate Amount (in

Rs. Millions)

Security

JRPICL 75,499,384 7,549,938,400 Unsecured

SBHL 43,814,000 4,381,400,000 Secured

HREL 79,055,257 7,905,525,700 Secured

Total 198,368,641 19,836,864,100

3. Representations and Warranties:

The key representations and warranties from each of JRPICL, HREL and SBHL under the Debenture

Subscription Agreements (subject to the disclosure letter) are set out below:

(i). Property

(a). The relevant Project SPV has full right, title and interest to assets owned by it, free

from encumbrance and has not granted any right, title or interest in such assets and

immovable properties or any part thereof, in favour of any person, save for

encumbrances created in favour of the senior lenders in relation to the senior

liabilities. For the purposes of the Debenture Subscription Agreements, “Assets”

mean all movable property and immovable property (if any) owned by the relevant

Project SPV.

(b). There does not exist any actual or, to the knowledge of the relevant Project SPV,

any threatened expropriation or eminent domain proceedings that materially affect

any of the Assets or any part thereof, and the relevant Project SPV has not received

any notice, written or oral, to such effect.

(ii). Litigation

The details of the litigations relating to the relevant Project SPV as disclosed through the

disclosure letter (or through the updated disclosure letter as applicable) are complete, true and

correct and discloses to the knowledge of such Project SPV, all existing litigations,

proceedings, suits, arbitration proceedings and mediations, by or against the such Project SPV.

To the knowledge of the the relevant Project SPV, there are no other litigations, proceedings,

suits, arbitration proceedings and mediations, threatened against it.

(iii). Material Contracts

(a). Each material contract entered into by the relevant Project SPV is in full force and

effect and is valid and binding in accordance with its terms, and the Project SPV is

not in default or breach of any material obligations thereunder. For the purposes of

the Debenture Subscription Agreements, “Material Contract” means the project

documents and any contract or agreement of any nature whatsoever, under which

the amount of money payable or other consideration to be made or the commercial

implication of which exceeds the aggregate amount specified.

(b). The relevant Project SPV is not in default or breach of performance of any material

obligation or condition of any instrument evidencing indebtedness to which it is a

party.

(iv). Environmental Matters

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(a). All environmental permits required for the operation of the business of the relevant

Project SPV have been obtained and all material terms thereto complied with.

(b). To the knowledge of the relevant Project SPV, there is and has been no

environmental investigation/proceeding concerning any of the Assets forming part

of the business of the relevant Project SPV, nor is such investigation/proceeding

threatened.

4. Key terms of Debentures:

The key terms of the Debentures in terms of the Debenture Subscription Agreements are set out below:

(i). Issue and Form of Debentures:

The Debentures will be issued by the Project SPVs to the subscribers in a single series. The

Debentures shall rank pari passu with each other without any preference or priority inter se.

(ii). Coupon rate and default interest:

The Debentures will bear interest at a coupon rate ranging from 8% - 12% per annum. Further,

under the Debenture Subscription Agreement, the Project SPVs are liable to pay default

interest for any non-payment of dues, calculated at the rate of 16% per annum compounded

annually (“Default Interest”) from the date such amount become payable till the date of

payment of such amount.

(iii). Tenor of Debentures:

The tenor of Debentures shall be as indicated in the schedule set out below (the “InvIT

Debenture Schedule”).

(iv). Amortization and redemption:

The Project SPVs shall redeem each Debenture by paying to the subscriber the Nominal

Value, unpaid coupon and all other amounts payable in respect thereof, subject to the

applicable law and in accordance with the terms of Debenture Subscription Agreement, on the

dates indicated as in the InvIT Debenture Schedule (the “Payment Date”).

(v). Early redemption:

The Debentures may be redeemed on an Early Redemption Date in accordance with the

Debenture Subscription Agreement and subject to the applicable law. The debentures in

respect of which payment is made by the Project SPV on an Early Redemption Date shall be

simultaneously extinguished, cancelled and shall not be re-issued to the extent of such

repayment.

(vi). InvIT Debenture Schedule:

Payment

Dates

SBHL HREL JRPICL

Principal Rate of Interest Principal Rate of Interest Principal Rate of Interest

1-Jan-17

31-Mar-17 - 8.0% 37,90,00,000 8.0% - 10.0%

31-Mar-18 - 8.0% 62,50,00,000 8.0% 54,70,00,000 10.0%

31-Mar-19 1,10,00,000 8.0% 64,00,00,000 8.0% 49,00,00,000 10.0%

31-Mar-20 - 8.0% 67,50,00,000 8.0% 55,00,00,000 11.0%

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Payment

Dates

SBHL HREL JRPICL

31-Mar-21 9,10,00,000 8.0% 72,00,00,000 8.0% 70,50,00,000 11.0%

31-Mar-22 8,80,00,000 8.0% 77,30,00,000 8.0% 72,50,00,000 11.0%

31-Mar-23 14,00,00,000 8.0% 82,70,00,000 8.0% 75,70,00,000 11.0%

31-Mar-24 40,80,00,000 9.0% 88,50,00,000 8.0% 92,00,00,000 12.0%

31-Mar-25 54,30,00,000 9.0% 96,00,00,000 8.0% 1,04,50,00,000 12.0%

31-Mar-26 65,10,00,000 9.0% 95,70,00,000 8.0% 1,30,00,00,000 12.0%

31-Mar-27 92,60,00,000 9.0% 46,45,25,700 8.0% 51,09,38,400 12.0%

31-Mar-28 1,09,90,00,000 9.0% -

31-Mar-29 42,44,00,000 9.0% -

31-Mar-30 - -

Total 4,38,14,00,000 7,90,55,25,700 7,54,99,38,400

5. Event of default and consequences:

The various events or circumstances that shall constitute an event of default include the following:

(i). Default in payment by the Project SPVs to any debenture holders within a period of 30

business days from the due date of such payment (“Payment Period”) and such default is not

cured within a period of 30 days from the expiry of the Payment Period. However, there shall

not be any cure period for defaults in payments due on the Payment Date;

(ii). Any representations and warranties provided by the Project SPVs are misleading or incorrect

and such defect is not cured within 30 business days from the date of receipt of a written

notice from the debenture holders;

(iii). Any payment obligation of the Project SPVs pursuant to any other indebtedness is accelerated

on account of an event of default occurring in respect of such indebtedness where the

aggregate amount so accelerated is more than Rs.10,000,000; and

(iv). Any pre-mature termination by the concessioning authority to the concession agreement

entered into by the Project SPVs.

Upon the occurrence of an event defaults, the Debenture holders may, subject to applicable laws, and

only in case of JRPICL, with the prior written consent of the senior lenders, if any, accelerate the

maturity of the Debentures and declare all of the amounts outstanding on the Debentures (including but

not limited to any coupon accrued thereon) due and payable by delivery of a written notice to the

relevant Project SPV, whereupon they shall become so due and payable by the relevant Project SPV as

of such date. If any Debenture holder does not accelerate the repayment of the debentures upon the

occurrence of an event of default, then the relevant Project SPV shall continue to perform all of its

obligations under the Debenture Subscription Agreement with respect to such Debenture holder.

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