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• Due to the adverse conditions in the equity market and the high interest rates, K Ramchand, managing director of IL&FS Transportation believes that the process of bidding for projects will be slightly rationalized. "We should be more successful in the next quarter as we move forward," he added.Ramchand further added that due to high bond yields, projects will be funded at high rates of 12.5-13.5%.

• Q: Can you elaborate on the recent acquisition of 49% stake in a Chinese entity?

• A: The acquisition that we did in China is of what is called the Yu He Expressway. This is a 58 kilometer road and has been in operation for about 10 years. It has a balance 20 year concession period and we made an acquisition of 49% in the newly formed company.

• This road is situated in a province called Chongqing, which is the fourth municipality other than the three which are already there on the sea coast. This is in the western part of China and has a lot of incentives provided to it. Not withstanding the others, I think the most important one is that it gets preferential treatment in terms of tax. It's under the federal government and it also has the advantage of being the first one outside of the seaboard.We acquired this last month, we finally closed the transaction on December 28th, but the process had started about four months back. Process was conducted in assistance with the World Bank and Singapore Government and they had other advisers like legal and transaction. After a detailed due diligence that we conducted, both using in-house personnel as well as external consultants, we made the best offer that we could which was about USD 160 million for a 49% stake. It gives us two positions in the company of the chief financial officer and the deputy general manager and therefore we will be hands on as far as the project is concerned.

• Q: What's the outlook in terms of order inflow and does it look like road project order flow has started improving?

• A: Well this year we have not been very successful with the bids that we have been able to put in as far as the NHAI is concerned. We got two orders from the state government of Jharkhand which is worth around Rs 700-800 crore.We have a very huge order pipeline where we are bidding in excess of Rs 50,000 crore and we believe that the nature of bidding doesn't seem to have changed even in the last 10 bids which were opened. We expect this is to slightly rationalize and we should be more successful in the next quarter as we move forward.

• Q: Do you think competitive intensity will moderate going forward? What's your view on that?

• A: My belief is that because capital markets are not doing as well as they were in the past, raising resources to fund the equity which will be required for these projects is going to be much more difficult. Secondly, the interest rates don't seem to have come down as we have expected and to fund these projects at such high interest rates is going to be difficult.If the bids were made on lower interest rates, you probably will have to go for these projects on a higher debt-equity ratio or a higher equity requirement for these projects and we believe that that will strain a lot of companies' balance sheets to be in a position to put equity repeatedly in these projects. So we believe that lot of reasons like these will cause some rationalization in the bidding process which we have seen so far.

• Q: We have seen yields cool off in the bond markets. Do you think there is a downward trajectory? At what rates are the newer projects getting funded of late?

• A: Today you are not able to raise funding at less than 13%. So depending on how good your pedigree is, you will be able to fund it between 12.5-13.5% which is fairly high as far as the infrastructure scenario is concerned.

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