‘We aim to sell 20 m sq ft in two townships along Yamuna Expressway this year’

The Rs 10,000 crore, 165 km Yamuna Expressway will connect the National Capital Region with Agra. It will have five residential townships along the corridor. The project is running ahead of the schedule and is likely to be completed next year. The project tries to find symbiosis between two divergent revenue streams — real estate and expressways business. Manoj Gaur, executive chairman, Jaiprakash Associates tells DNA developer equity is crucial for the success of such projects. Excerpts:

Real estate and expressways have very different revenue streams. How will you manage the asset-liability mismatches that can arise?
 I don’t see a mismatch. The key thing is, any project of this nature requires strong belief from its promoters. And the belief is demonstrated through investment in equity. Secondly, once we invested in equity, our lenders were convinced about two things: one is that track record of the Jaypee Group and the other the opportunity cost of real estate available with us.

People have burnt fingers in real estate many times. How will you avoid the pitfalls?
After the 2008 meltdown people have been slightly edgy on real estate. But, in our case, real estate is a part of an infrastructure project. Our cost of construction is going to be far lower than anyone else. That’s because we have been in the construction business for long. Secondly, we got land as a part of an agreement. And the model on which the entire project is based is that if you build a road, real estate values go up; it you don’t, the land is worth nothing.

What is the picture on ground on realty development? What have been the milestones till date?
We are targeting constructing twenty million sq ft in this financial year in the first two townships that will be coming up. These ones, nearer to Delhi and Agra, will be sold first. The progression will not be linear - one, two, three, four, five; it will be one, two, five, three, four — in terms of cities coming up along the route. With the metro and the Noida airport on the cards, there will be gradual monetisation of the real estate opportunity. On milestones, when we put up the equity, we did by monetising real estate — the first parcel at Noida. When we went for the public issue, we already had, as part of a project cost of Rs 9,700 crores, almost Rs 1,000 crore of real estate revenue. And this was supposed to come in only by March 2011. The road, thus, is funded by equity worth Rs 1,250 crore, real estate and debt worth Rs 6,000 crore, and Rs 1,500 crore from the IPO.

When do you see the debt being repaid?
Within the next ten years.

What gives you the confidence?
Five townships will mean 400 million sq ft. Even if we take a moderate, economical Rs 2,500 per sq ft rate, you are selling Rs 100,000 crore of real estate over 25 years, so the loan is not an issue at all. It’s a question of vision. When Reliance Industries went for gas, who would have thought that gas would become such an important fuel? Similarly, this is not just about real estate. We went for a greenfield infrastructure project that entailed an investment of Rs 10,000 crore in roads, which nobody was ready to put up. This is a path-breaking initiative where a private developer has built a road that the government used to once, and in the process got a licence to build five cities.

Does the contract with the UP government allow you to extend the concession period?
No, it does not.

The Centre is also struggling to formulate an expressways development plan that has contiguous real estate. What’s your advice to it?
The most important thing is that the contractor should be a large organisation, capable  of arranging the equity and most importantly, should have credibility. Real estate has to be made a part of the project. Otherwise, why will a developer invest his money?

As for the Yamuna Expressway, there is already a highway to Agra from Delhi, which the government is going to expand. Will this hurt your plans?
To be very frank with you, for 7% plus GDP growth, for all those investments in automobiles, agriculture and industry, roads will have to expand. There will be competition and ultimately the fittest will survive. Least travel time, and maximum riding pleasure, will make the winners.

How many toll gates will be there on the Yamuna Expressway? Will electronic booths as mooted by the Centre be an option?
There will be five toll plazas. You will reach Agra in less than two hours. The government is right in its approach to electronic tolling; we also understand the technology and we are installing electronic booths.

What is unique about the Yamuna expressway project?
I don’t think there is a precedent. And the entire investment has come from the developer. Traditionally, the government used to make the roads and then the cities would come up around it over a period of time. This was the model that, I think, the government of Uttar Pradesh had in mind when it floated the Yamuna Expressway tender in its earlier avatar as Taj Expressway, in 2002. It had contemplated two things then: one, there will be no investment by the government of UP, but it will give away rights to 6,000 acres of real estate along five states. The second was the developer had to make the investment for the entire 165 km road which would then get transferred to the UP government at a cost of one rupee after the end of the concession period.

What made you go for it?
We understood that once the road is built, we would have the opportunity to create new cities. In India, if you see in the last 65 years, except for Chandigarh and Gandhinagar, no cities have been built from scratch. There is old Delhi, New Delhi, old Bhopal, New Bhopal. So it was accepted that investments will be made to lay roads. But ultimately, when the road is ready and the country clocks a higher growth rate, people will have to own homes too — such as in the NCR. That’s the premise on which we started.