1. Highway sector: NHAI reforms working, but several projects under hybrid- annuity face challenges

Highway sector: NHAI reforms working, but several projects under hybrid- annuity face challenges

However, there are projects still in the high-risk category and several developers face significant funding gap. Also, around 25% of the projects awarded on hybrid-annuity could face challenges in debt servicing.

By: | Mumbai | Published: October 18, 2016 6:45 AM

The highways sector is seeing improvement in the pace of execution and the number of high-risk projects are also on the slide, with the reforms undertaken by the National Highways
Authority of India (NHAI) and the ministry of road transport and highways.

However, there are projects still in the high-risk category and several developers face significant funding gap. Also, around 25% of the projects awarded on hybrid-annuity could face challenges in debt servicing.

These are some of the latest findings of the ratings firm Crisil. A 13% reduction has been observed in high-risk projects over the past financial year, Crisil said in a statement. The risks pertained to completion of under-construction projects and debt servicing ability for operational ones.

The analysis was based on 85 under-construction and 104 operational BOT (build operate and transfer) and annuity projects, awarded by National Highways Authority of India (NHAI) spanning nearly 16,600 km, the statement said.

Things also look much better in terms of pace of construction, which improved 40% from an average 4.3 km per day in financial year 2014-2015 to 6 km in financial year 2015-2016.

Ajay Srinivasan, Crisil Research director, said: “The material improvement in the pace of execution can be attributed to policy reforms by the NHAI and facilitations by the government which are also reducing delays. Given this, we expect the average construction per day for NHAI projects to nearly double to more than 11 km by fiscal 2018”.

While within the 85 under-construction BOT projects, there has been a 10% reduction, Crisil points out as much as 4,600 km of projects are still in the high-risk category because delay in land acquisition and approvals have increased costs by 20% or R11,000 crore, and the financial health of sponsors remains weak. These stuck projects were largely awarded during financial years of 2009 to 2012 and the mitigation options for them include a one-time fund infusion through NHAI loans, and a change in sponsor, the ratings firm said.

Sushmita Majumdar, another Crisil Ratings director, observes that of the 4,600 km high-risk under-construction projects, 1,400 km has reached the provisional commercial operations date (PCOD) stage, but are still unviable due to cost overruns and weak sponsors.

“These projects need a whopping 60% revenue growth to meet debt service requirements. Refinancing, debt restructuring, premium deferment or acquisition by a stronger sponsor are the only solutions,” she said.

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