IRB is the first developer to seek the relief package cleared by the government recently for salvaging road projects stressed due to less-than-anticipated toll revenue or delays in clearances. Most developers have not found the package attractive enough.
IRBs proposal is for two of its projects: Six-laning of the Ahmedabad-Vadodara (102 km) stretch and four-laning of the Tumkur-Chitradurga (114 km) stretch in Karnataka. The combined premium payments for FY15, which the firm wants postponed as per the Rangarajan formula, is R430 crore. While the total value of the Ahmedabad-Vadodara project is R2,226 crore, that of the Tumkur-Chitradurga project is R839 crore.
The projected toll on the Ahmedabad-Vadodara stretch in FY15 is R130 crore, while debt servicing cost is R97 crore and operation and management cost R17 crore. As per the contract, IRB has to pay a premium of R340 crore for FY15. This means if the Rangarajan formula is applied, the project will have a negative value of R488 crore for the year.
As the formula says the deferment cannot be more than 100% of the premium committed, the company has sought to postpone premium payment of Rs 340 crore. In the case of the Tumkur-Chitradurga project, the premium sought to be postponed is Rs 90 crore.
A project, once classified as stressed as per the Rangarajan formula, will be allowed to postpone premium payments to the following year under Article 28 of the Model Concession Agreement. The rescheduled amount will be treated as a revenue shortfall loan. Once toll collections pick up and the revenue shortfall is eliminated, the developer will have to pay the premium along with the deferred amounts and interest thereon. The discounting rate in order to ensure that the net present value of the premia doesn't change is determined at 10.75%.
Virendra Mhaiskar, chairman of IRB Infrastructure Developers told FE that the company is hopeful of getting NHAI approval soon for the relief sought.
"On Ahmedabad-Vadodara project, the deferment of premium could be to the tune of Rs 341 for FY15 while on Tumkur-Chitradurga around Rs 90 crore for FY15 of premium will get deferred every year," Mhaiskar said. According to him the debt on the Ahmedabad-Vadodara project will come down by Rs 400-Rs 450 crore with this move as visibility on cash flows improve and interest during construction comes down.
For Tumkur-Chitradurga, a 114 km long project, the company is paying Rs 155 crore as premium, increasing 5% year-on-year, while the debt on the project is Rs 1,000 crore. The company is yet to work out the benefits on debt for this project, said Mhaiskar.
Sources said NHAI will now examine the IRB proposal and its board would take a call on it in a few days.
They added that a few more proposals for premium recast were expected in the new few days. Some leading infrastructure companies including GMR (whose Kishangarh-Udaipur-Ahmedabad project is among the 40-odd stressed projects for which the premium recast package was formulated) may, however, opt not to sign up. They have called the package inflexible and impractical.
In the case of the Ahmedabad-Vadodara project, IRB might eliminate its revenue shortfall in a couple of years, as it completes six-laning of stretch, resulting in higher toll collections.
The total premium due to NHAI on the Ahmedabad-Vadodara project is Rs 14,800 crore over a concession period of 25 years and for the Tumkur-Chitradurga stretch, the company had promised a premium of Rs 7200 crore for 25-years concession period.
Lenders are beneficiaries of the premium recast. In both the cases of IRB, IDFC is the lead banker with an exposure of Rs 4,300 crore to the two projects.
Meanwhile, Gammon Infrastructure Projects Ltd's chief financial officer Parag Parikh said that though the scheme will benefit one of its projects, it falls short of having any significant gains for the developers. It is more of a comfort to lenders, as the scheme will provide for better debt service coverage ratio and will slightly increase the bankability of the project. Gammon's 103.6 km long Vijayawada-Elluru-Gundugolanu project could be eligible for rescheduling of premium, but Parikh says the amount of premium paid is just around Rs 57 crore. The scheme will allow the company to defer premium payment of Rs 28-29 crore every year. The company is yet to get an appointed date for the project, which has achieved financial closure and has a debt of close to Rs 1,600 crore.
Ashoka Buildcon's Dhankuni-Kharagpur project may also be rescheduling. Managing director Satish Parakh said the scheme would benefit the project as some loans on the project will come at a cheaper rate. Initially, we had negative cash flows on Dhankuni-Kharagpur, so we had put in Rs 200-Rs 250 crore in the project taking additional loans from banks. With the formula suggested, we could have that amount come at a cheaper rate, which will benefit the project, said Parakh.