Bloomberg News

L&T May ‘Re-Look’ at $2.8 Billion India Rail on Land Delays

October 25, 2011

(Updates with closing share price in sixth paragraph.)

Oct. 25 (Bloomberg) -- Larsen & Toubro Ltd., due to build and run a railway in the Indian city of Hyderabad, said it may have to “re-look” at the viability of the 141.3 billion-rupee ($2.8 billion) project because of hold-ups in acquiring land.

“If there is further delay, then we will ask for more time” in the 35-year concession, V.B. Gadgil, head of the L&T unit overseeing the project, said in an Oct. 20 interview in Hyderabad. “But, if the government says we can’t do anything about it, then we would have to re-look at the viability of the project.” He declined to say if Mumbai-based L&T would consider quitting the railway.

The train system is already likely to open later than the 2015 target because only 50 percent of the land along the 71.2 kilometer (44 miles) network has been acquired by the government of Andhra Pradesh state, Gadgil said. Tata Motors Ltd., Posco and ArcelorMittal have also had investments disrupted in India because of court appeals by landholders against selling out.

“If we don’t get the land, then definitely the project will be delayed,” said Gadgil, the chief executive and managing director of L&T Metro Rail (Hyderabad) Ltd. “The government says they are trying their best, but there is no definite timeline.”

Delays will be unavoidable if land issues aren’t resolved within about a month as the company has been unable to order railcars and other equipment because of uncertainty about the opening date, he said.

Larsen rose 3.3 percent to 1,337.05 rupees at the 3:30 p.m. close in Mumbai trading. The shares have declined 32 percent this year, compared with a 16 percent drop in the benchmark BSE India Sensitive Index.

Money Already Spent

The company has spent about 4.5 billion rupees of its own funds on the project, including on engineering and studies, he said. It has yet to draw down any of a 114.8 billion-rupee 15- year loan it raised from local banks at 10.5 percent to fund construction, he said.

Hyderabad, home to the local operations of Microsoft Corp. and Facebook Inc., plans to open the rail network as a growing population and rising car ownership creates traffic congestion. Bangalore opened its first metro line last week.

Most of the land acquisitions are complete, N.V.S. Reddy, managing director of the state-owned Hyderabad Metro Rail, said by telephone yesterday. Purchase of some land near the city’s airport for the rail network’s depot has been delayed because of a legal dispute, he said.

“The matter is before the Andhra Pradesh High Court,” said Reddy. “We’re confident of resolving it” within two months.

Missing Targets

Delays in acquiring land contributed to Asia’s third- biggest economy missing infrastructure construction targets in the year ended March 31, 2010, according to the central Planning Commission. The government has proposed legislation in parliament aimed at expediting land acquisitions for industrial purposes, as it seeks private investment in roads, railways and airports.

About $392 billion needs to be spent in India on mass urban transportation networks, including rail, in the next 20 years, McKinsey & Co. said in a report last year.

Steelmakers ArcelorMittal and Posco, which have $32 billion of planned projects in the eastern Indian states of Orissa and Jharkhand, have waited more than six years because of delays in securing approvals and land. Tata, the owner of Jaguar and Land Rover, abandoned a near-complete facility in Singur, West Bengal state, in October 2008 after violent protests by farmers against land acquisitions.

--Editors: Neil Denslow, Subramaniam Sharma

To contact the reporters on this story: Sharang Limaye in Hyderabad at; Karthikeyan Sundaram in New Delhi at

To contact the editors responsible for this story: Neil Denslow at; Arijit Ghosh at

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