Image Source: Batmaniacs, CC BY-SA 4.0, via Wikimedia Commons
Engineering and construction conglomerate Larsen & Toubro (L&T) has reached an in-principle understanding with the Government of Telangana (GoT) for the state to take over the L&T Metro Rail (Hyderabad) Limited project.
The move is designed to break a long-standing deadlock that has stalled the expansion of Hyderabad’s public transport network.
According to a regulatory filing, the in-principle understanding outlines that the Telangana Government would acquire L&T’s equity in the metro Special Purpose Vehicle (SPV) and refinance the project’s current debt. L&T expects the divestment to be finalised by the end of the fiscal year FY26.
Breaking the Deadlock on Phase 2 Expansion
The decision follows extensive negotiations aimed at paving the way for the metro’s proposed Phase 2 expansion. The Government of Telangana has been seeking approval for an additional 163km of metro network, as Hyderabad has slipped from the 2nd to the 9th position in the country for metro network length since 2014.
Approval for Phase 2 from the Government of India was contingent on L&T either participating as an equity partner or signing a “definitive agreement” for the operational and financial integration of Phase 1 and the proposed Phase 2.
L&T declined both options. The company’s CMD, Sri S.N. Subrahmanyan, reiterated that L&T has exited the business of owning and operating transportation concession assets and would not participate as an equity partner.
The company also informed officials it was unable to sign the definitive agreement due to “major concerns regarding seamless train operations” and the proposed revenue and cost-sharing mechanisms. To resolve the impasse, L&T offered to divest its complete stake in the project.
Following detailed negotiations, an understanding was reached in principle. The key financial points discussed include:
- The State government will take over the project’s entire debt, which currently stands at approximately Rs 13,000 Crore.
- The State government is expected to pay L&T around Rs 2,000 Crore for its equity investment as a one-time settlement, subject to final negotiations.
During the discussions, L&T initially suggested an equity value payment of Rs 5,900 crores. It was also noted that the state government was yet to pay Rs 2,100 crores of an agreed Rs 3,000 crore interest-free loan as per a 2022 agreement.
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