1. Proposal to sell highways a lower-risk option for investors, says Fitch Group

Proposal to sell highways a lower-risk option for investors, says Fitch Group

The government's proposal to sell 10 existing highways for USD 1 billion is a unique opportunity for foreign investors, Fitch Group company BMI Research said today

By: | New Delhi | Published: June 22, 2017 8:56 PM
The highways segment will be one of the fastest-growing areas of India’s infrastructure market, says fitch group. (Source: IE)

The government’s proposal to sell 10 existing highways for USD 1 billion is a unique opportunity for foreign investors, Fitch Group company BMI Research said today. The move will provide scope for global investors to become involved in the country’s highway sector, it said. “The highways segment will be one of the fastest-growing areas of India’s infrastructure market, and the government’s plan to sell 10 existing highways to private investors for USD 1 billion, provides a lower-risk option for foreign investors to target the vast Indian market…,” BMI Research said in a statement. The government’s goal of attracting foreign capital in the sale is particularly opportune, as greenfield highway projects in India increasingly favour domestic contractors and operators, as local companies build up their expertise in the sector and make the overall competitive landscape more challenging, it said. “While demographic and economic development factors bode well for traffic growth and highway demand in India, we note that the country remains a relatively high-risk environment.

“While demographic and economic development factors bode well for traffic growth and highway demand in India, we note that the country remains a relatively high-risk environment. “Highway PPPs have been operating in India for decades with varying degrees of success, with some operators finding stable traffic flows, while others have run into disputes with government bodies over inaccurate traffic projections and maintenance standards,” the report added. Contract data from the National Highways Authority of India (NHAI) for the ongoing National Highways Development Programme (NHDP) shows that the majority of projects launched in recent years were PPPs, and that the proportion of contracts awarded to a consortium consisting of, or including, a foreign company has declined significantly. BMI Research attributed these trends to the rising expertise of Indian companies in the highway construction and operation sector, which gives them a greater advantage over international companies when combined with their greater knowledge of local risks.

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BMI Research attributed these trends to the rising expertise of Indian companies in the highway construction and operation sector, which gives them a greater advantage over international companies when combined with their greater knowledge of local risks. At the same time, it said the government has been pushing for greater use of PPPs – ranging from traditional annuity and toll models to a recent ‘hybrid annuity model’ – as the NHAI lacks the capital to fully implement its planned projects. The upcoming sale, proceeds of which will go towards financing the construction of new assets, continues the current government’s trend of using public-private partnerships (PPPs) to expand the country’s underdeveloped highway network, it said.

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