Over Rs 1 trillion of HAM highway projects under NHAI tie up debt: Crisil

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Hybrid annuity projects worth Rs 1 trillion offered by the National Highways Authority of India (NHAI) have achieved debt funding says an analysis by Crisil.

A moderation in the pace of highway projects awarded in fiscal 2019 gave developers the latitude to arrange for funding and focus on execution. Less than 3,000 km of projects were bid out in fiscal 2019
compared with an all-time high 7,400 km in fiscal 2018.

The debt tie-ups have been driven by low risks in HAM, prudent bids, and track record of execution of strong and experienced sponsors.

“There were apprehensions because 8-10 bidders had garnered the lion’s share of HAM projects leading to concentration risk. Besides, at that point in time, 11 public sector banks were placed under the Reserve
Bank of India’s Prompt Corrective Action (PCA) framework, which aggravated the funding risk for these projects. However, developers with established track record of project implementation have been able
to achieve timely debt tie-ups. Now, with six banks coming out of PCA, ease of funding will further improve,” says Sachin Gupta, Senior Director, Crisil Ratings.

That said, physical progress of projects is tardy given slow traction on ‘Appointed Date’, which marks the start of a project concession period. Only 60 per cent of the 108 HAM projects bid till the middle of last
fiscal have received it so far.

But that’s a blessing in disguise, because NHAI notifies the Appointed Date only when majority of the land (80 per cent for HAM projects) is procured. This ensures that once a project is under construction, there is limited risk of delays due to non-availability of land.

Wary of this, bankers stipulated that debt draw downs are contingent upon 80 per cent right of way (RoW) being available at least by the 3G stage of land acquisition, where compensation to landowners is finalized.

These measures have given a new lease of life to a sector that has been historically plagued by land and approval issues, leading to stalled projects.

“Given at least 40 per cent of the existing order book is HAM, developers need to bring in equity to manage their balance sheets. That means, the ability to sell stake in projects and free up capital is crucial. We have seen some deals happening already. This would help sustain growth in order book without impacting credit risk profile,” says Sushmita Majumdar, Director, Crisil Ratings.

Crisil believes HAM will remain a good mode of awarding highway contracts and will be preferred by NHAI, EPC players, and lenders. The key factor to monetize in the road ahead will be timely construction
and completion of projects and receipt of payment from the NHAI.

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