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Highway builders could get to exit projects early, easing fund crunch

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SummaryThe government is planning to ease exit options for companies investing in highway projects by allowing them to make a complete exit immediately after the commercial operations date.

The government is planning to ease exit options for companies investing in highway projects by allowing them to make a complete exit immediately after the commercial operations date (COD). This will unlock the equity stuck in projects while letting companies with no interest in running the projects make an exit soon after construction.

The move is part of a series of measures being planned by the government to ease the funds crunch in the sector and revive investor interest.

Under the norms in place since November 2009, developers must hold at least 26% of equity up to 2 years after the COD. Moreover, developers of build-operate-transfer (BOT) projects awarded before 2009 do not have the option to exit completely.

According to an official, the ministry of road transport and highways has circulated a Cabinet note proposing these amendments to ease exit by developers. This, he said, is in recognition of the fact that in many cases, developers are over-leveraged and are not in a position to access bank finances due to lack of equity capital.

However, the relaxation will come with a rider — the National Highways Authority of India board will decide whether the company seeking exit is critical enough for the project to deny exit.

Experts say once the exit policy is amended, highway projects will not only attract investors but will also help the market position of developer companies.

Banks have turned wary of roads sector due to the long project durations, “unsecured” nature of advances and huge regulatory delays, choking credit for developers.

“Infrastructure firms are now required to stay invested in a road project for years after completion, while they would like to exit after completion of a project and deploy the freed-up funds in fresh projects,” said a market analyst who did not wish to be quoted.

Shares of many highway builders which went public in the last 4-5 years are trading much below issue price. There have been no fresh equity issues of highway builders in the last 2-3 years. Thus, raising fresh funds through share sales seems unlikely, making exit important for companies.

“ There are many PE firms and investors interested in investing in completed road projects and not in the new projects. The government should not lose this opportunity and should rather cash in on the same during these tough times,” said a senior NHAI official.

Smoother ride

* Proposal to allow flexibility in allowing withdrawal of equity by concessionaires

* NHAI board to decide if company seeking exit is critical enough for the project

* BOT road projects awarded before 2009 do not have a complete exit option

* An amended exit policy will also help the market position of developers

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