NROCC increases gains from investments
Finance costs, losses rise
In spite of collecting over $17 billion from highway investments between 2020 and 2021, NROCC, toll road overseer in Jamaica, is operating at a loss annually.

The National Road Operating and Constructing Company (NROCC), for the current fiscal year (FY) 2022/23, is projecting a net loss of $5.99 billion (2021/22: $8.32 billion).

Yet, just last year, in July 2021, the government agency walked away with a net gain of $3.6 billion for its preference shares held in former subsidiary TransJamaican Highway Limited (TJH). This gain is in addition to the $14 billion secured in 2020 when the government body, which has oversight of highways, sold an 80 per cent stake in TJH.

Last year NROCC sold the preference shares held in TJH Limited at a significant profit. This followed the decision by TJH to issue NROCC, in January 2021, $2.7 billion in redeemable cumulative preference shares. The issue replaced previously issued preference shares that were also held by NROCC.

Herbert Hall, former vice-president and head of investment banking, NCB Capital Markets, Jamaica and Northern Caribbean — who has since left to form his own company — shared that on July 31, 2020, NROCC sold 100 per cent of its preference shares via a private placement and in the process raised $3.59 billion.

At the time, the investment manager said that the offer attracted interest of just over $3.81 billion from 48 investors, representing a subscription of 106 per cent of the offer amount.

Capital outlay

For the FY 2022/23, NROCC is targeting 100 per cent construction completion of Phase 1C — May Pen to Williamsfield segment — of Highway 2000. It is also overseeing the construction of the Montego Bay Perimeter Road. Key activities will include contract completion, review of final designs and provision of access to additional lands for construction — up to eight kilometres as outlined in the most recent Government of Jamaica Public Bodies' Report.

The Montego Bay bypass will involve the construction of 25 kilometres of roadway consisting of two segments. These will be a 15-kilometre bypass project starting from Ironshore and linking Bogue Road and the Long Hill bypass involving construction of 10 kilometres of highway from Montego Bay down to Montpelier.

In FY 2020/21, total company revenues for NROCC were $759.07 million, down from $1 billion the year before. Income from TJH was $233.9 million. Interest income was $533.7 million and management fees $88.83 million.

Finance costs were in the region of $5.3 billion, forming the majority of operating expenses of $6 billion. In the prior year, finance costs were reported at an estimated $5.86 billion.

NROCC, created in 1995, entered into an arrangement with TJH for the design, construction, operation, and maintenance of the Highway 2000 toll road.

The project was conceived as a public-private partnership and implemented as a build finance-operate and transfer (BFOT) 35-year concession scheme. NROCC's stake in TJH was divested in the 2020 IPO.

NROCC, overall, still holds the responsibility for monitoring the performance of TJH to ensure compliance with the requirements of the existing concession agreement and for monitoring new tolled roads which are added to the network.

Consolidation of revenue sources

TJH, meanwhile, has been consolidating its hold on revenue sources since mid-2022. The highway management company is currently negotiating for the 100 per cent shareholding in Jamaica Infrastructure Operator Limited (JIO), the entity responsible for the day-to-day operations of the Highway 2000 East-West and TJH, with a view to the parties entering into a binding share purchase agreement.

TJH has also entered into a transaction agreement in which it will pay an aggregate US$16 million to Bouygues Travaux Publics and VINCI Concessions for a call option to acquire each company's stake in JIO. JIO manages and operates the highway on behalf of TJH under an operation and maintenance agreement, with VINCI owning 51 per cent of the joint venture.

This coincides with a proposed change to the operating and maintenance agreement with JIO, which will see its monthly fixed fee component cut by 72 per cent and its variable rate increased from 3.0 per cent to 5.0 per cent on theoretical toll revenues.

All of these transactions are subject to the consent solicitation seeking various amendments related to its 5.75 per cent senior secured notes due 2036 and approvals by NROCC, which is the concessionaire under the concession agreement.

Once completed by December 16, TJH will exercise its call option to acquire VINCI's stake, but will not exercise its option for Bouygues' stake until it receives approval from NROCC. JIO's operator fees account for almost 80 per cent of the expenses related to the concession, with the amendment expected to save TJH going forward as JIO will share more in the variable risk of traffic flow.

Plans earlier considered by the company's directors to ask the Government of Jamaica for compensation for pandemic losses, actionable under the terms of its agreement, have not been raised since traffic began to recover in 2021.

For the quarter ended September 30, 2022, the company had revenue of US$16.7million, reflecting a 28 per cent increase of US$3.6 million, compared to revenue of US$13.1 million for the same period in 2021.

This was attributable to the continued improvement in traffic following the lifting of the measures implemented to combat the spread of the COVID-19, in addition to the annual increase in toll tariff which took effect in July 2022.

Overall, revenue for the nine-month period ended September 30, 2022, was US$47 million relative to US$37.5 million for the same period in 2021, an increase of 25 per cent.

Cash and cash equivalents for TJH at September 30 were US$7.3 million, up from US$5.01 million at nine months, September 2021.

NROCC is now negotiating with TJH for the sale of Phase 1C of the highway, the leg of road being developed between May Pen and Williamsfield and which is to be commissioned in 2024.

It is likely that proceeds from the transaction will be used to pay down debt, but there is also a likelihood that the proceeds might go to the central government to address other national needs.

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