1. INTRODUCTION

The Board of Directors of SunCon is pleased to announce that Sunway Construction Sdn Bhd – RNS Infrastructure Limited (“Consortium”), a consortium formed by Sunway Construction Sdn Bhd (“SCSB”), a wholly-owned subsidiary of SunCon and RNS Infrastructure Limited ("RNS") has been awarded and has today, accepted the Letter of Award (“LOA”) issued by the National Highways Authority of India (“NHAI”), for the following project for a total contract sum of Rs.864.51 Crore in addition to a 15-years operating and maintenance contract at Rs.7.08 Crore per annum:

“Four laning of Thorapalli Agraharam – Jittandahalli Section of NH-844 from Km 25.000 to Km 63.500 (existing Chainage) corresponding to Km 23.350 to Km 60.100 (Design Chainage) under Bharatmala Pariyojana Phase-I (National Corridor) on Hybrid Annuity Model in the State of Tamil Nadu (Package-II of Hosur Dharamapuri Section)” (hereinafter referred to as the “TJ Project”).

2. ABOUT THE TJ PROJECT

The TJ Project will be operated under the Hybrid Annuity Model (“HAM”) for a concession period of 15 years plus 2-years construction period. The construction for the TJ Project shall commence in October 2020 and is expected to be completed within 2 years. A Concession Agreement for the TJ Project will be signed in May 2020.

Under the HAM, NHAI will pay 40% of the project cost in the first two years during the construction period in five equal installments whereas the remaining 60% is paid over 15 years as fixed annuity amount plus interest which is benchmarked at RBI (Reserve Bank of India) rate + 3%. There is no toll right for the concessionaire. Revenue collection from the highway toll would be the responsibility of the NHAI. 

The TJ Project is expected to contribute positively to the earnings of SunCon Group from the financial year ending 31 December 2021 onwards.

3. INFORMATION ON THE CONSORTIUM

The Consortium has been formed between SCSB and RNS with the following participation interest, for the purpose of jointly bidding for the TJ Project:

• SCSB: 60%
• RNS: 40%

4. INFORMATION ON RNS

RNS is a company incorporated in India with its registered address situated at Murudeshwar Bhawan, Gokul Road, Hubli 580 030, Karnataka, India. RNS has a paid-up share capital of INR63,000,000 comprising 63,000,000 ordinary shares.

RNS is an Indian local company owned by R.N. Shetty family. RNS provides wide range of infrastructure construction services such as construction of dams, highways, bridges, tunnels, power houses, and residential buildings.  

Apart from construction, RNS Group has exposure in education (nursing college, polytechnic and institute of technology), hotels, power plant and wind farms, manufacture of vitrified tiles and ceramic tiles, as well as dealership and showroom for Maruti cars.

RNS was SCSB first joint venture partner when SCSB ventured into India in June 2001 for its first 2 infrastructure projects.

5. REQUIREMENTS OF NHAI

It is a requirement of NHAI that a limited liability company shall be incorporated under the Indian Companies Act 2013 to undertake and perform the obligations and exercise the rights of the Consortium under the LOA, including the obligation to enter into the Concession Agreement for the execution of the TJ Project.

In view thereof, SCSB and RNS will jointly incorporate a company in India (“JV Company”) with the same proportion of equity interest as mentioned above to jointly carry out the TJ Project.

SCSB will fund its share of the equity participation in the JV Company through internally generated funds. The TJ Project will be financed by the JV Company via its share capital as well as external borrowing.

6. PROJECT RISK AND OTHER ASSOCIATED RISKS

Project Risk

The TJ Project has price fluctuation clause throughout the 2-years construction period and 15 years' maintenance period. 

In addition, NHAI will pay the JV Company interest income on the 60% of the contract sum which will be paid over 15 years at RBI (Reserve Bank of India) rate + 3%. Under the HAM, it provides enough liquidity to the concession holder and the financial risk is shared by the NHAI. This will mitigate the fluctuating interest rate risk of the JV Company in financing the 60% portion of the project throughout 15 years.

Financing Risk

Based on SCSB’s net cashflow and strong financial position, the JV Company is confident in securing the financial close for this TJ Project.

Foreign Currency Exchange Risk

Most of the costs of the TJ Project will be in Indian local currency. Coupled with the plan to have local INR financing, SCSB’s risk in relation to foreign exchange is limited apart from SCSB’s capital investment in the JV Company which SCSB will need to repatriate back once the concession period for the TJ Project ends.

7. DIRECTORS' AND MAJOR SHAREHOLDERS' INTEREST

Insofar as the Directors are aware, none of the Directors or major shareholders of SunCon or persons connected with them has any interest, direct or indirect, in the TJ Project.

This announcement is dated 26 March 2020.