Keen to multiply the funds available for highway construction when private investment is languishing, the National Highways Authority of India (NHAI) has drawn up a multi-pronged strategy, including aggressive monetising of operational projects by transferring these on a long-term lease to global funds with patient capital. It is also looking at hitting the capital market with an initial public offering (IPO), although this might take a few months to materialse given that the authority needs to be corporatised before the listing. Apart from Budget support — which includes its share of the road cess proceeds and toll revenue — the authority has conventionally raised debt through taxable and tax-free bonds (see table). “If the ministry (of road transport and highways) directs us, we will tap the equity market, but for that corporatisation of NHAI is a must. We will have to look at that first,” a senior NHAI official told FE.
While the Centre has set an ambitious target to step up highway construction to 41 km/day, despite its best efforts, the figure hasn’t crossed 25-km during any quarter since it assumed office. In April-August this year, the construction’s pace was 21 km/day. The NHAI has been assigned to construct 6,000-km highways in FY18 and award 10,000 km projects. Against this, it has constructed just 972 km and awarded an unimpressive 315 km in the first five months of the current fiscal. In FY17, NHAI constructed 2,628 km and awarded 4,355 km. With very few pure build-operate-transfer (BOT) projects, most of the projects in its fold now are hybrid annuity model (HAM), where the little risk is assigned to private investors while the conventional engineering procurement and construction (EPC) model is also relied on in a big way. NHAI has raised Rs 8,500 crore recently from LIC in two tranches at an average rate of 7.2%. Of its total Rs 15,025 crore borrowings so far in FY18, it raised Rs 3,000 crore through masala bonds at 7.3% cupon rate and Rs 1,525 crore via market borrowings at 7.27%.
However, industry experts said the IPO process would be difficult for NHAI and it would take at least 9 to 10 months. A top rating agency official told FE: “There’s a lot to catch up for NHAI in terms of compliance and disclosures. At present, even their annual reports come with a lag of one year. Once listed, quarterly reports have to be published within 45 days of the end of the quarter.” Moreover, the NHAI is not a profit-making organisation (its losses stood at Rs 221 crore in 2015-16). A research analyst with a leading Indian brokerage pointed out NHAI will, therefore, need to demonstrate to potential investors about the kind of returns on equity and profits they could make as a corporate. When contacted, NHAI chairman Deepak Kumar was non-committal on the IPO plan, but said: “We hope to raise Rs 7,000 crore by giving nine projects in the first tranche under the toll-operate-transfer (TOT) model. This will happen soon.”
The TOT model, through which the government intends to lease out 75 operational national highways essentially to private players, including global funds with long-term capital, is likely to open up a new set of business opportunity for existing players as well as new entrants into the operation and maintenance (O&M) space NHAI does not award any project unless it acquires 90% of the required land. It has around 270 highway projects, aggregating at around 11,000 km under various stages of implementation now.