Lenders to existing National Highways Authority of India (NHAI) road projects will find it easier to refinance loans. NHAI chairman RP Singh told FE that the authority would allow such flexibility — securitisation or additional lending —up to 30% of the cost of the original project. The idea is to infuse greater liquidity into the sector.
“We now have a board-approved policy for securitisation, albeit with restrictions. For instance, we will not allow additional funding of more than 30% of the total project cost. The concessionaire should also demonstrate that he is in a position to service the debt and will not neglect expenses on operation and maintenance,” Singh said. The NHAI’s liability to the lenders and concessionaire, in the event of the project being terminated, however, does not change.
Put simply, if a R100-crore project has a R60-crore bank loan, the concessionaire can go to another bank and get it refinanced so as to get another R30 crore (30% of the R100-crore project cost). NHAI’s obligation on termination of the project, however, will remain the same.
The refinancing issue came to the fore in the case of the Delhi-Gurgaon Expressway where the concessionaire DS Construction got the original loan refinanced twice over, the latest being with an IDFC-led consortium. While the IDFC-led consortium lent R1,600 crore to the project on the basis of the project’s future toll collections, NHAI did not ‘recognise’ the consortium as lenders to the project; so when it looked like the project was going to be terminated — due to the concessionaire’s inability to operate the expressway efficiently — the consortium stood to lose all its money.
Had the consortium been ‘recognised’ by NHAI, it could have, under the agreement, simply substituted DS Construction with another operator and managed the expressway — NHAI would no longer want to terminate the contract and so, its future revenue streams would have been protected.
Though NHAI has recognised IDFC as a lender, Singh said, such financing levels will not be allowed in the future — the IDFC consortium’s R1,600-crore refinancing was a lot higher than the cost of the Delhi-Gurgaon expressway project. “We have recognised IDFC as a lender and we have allowed R1,250 crore of securitisation,” Singh said.
Singh said that even if NHAI’s liability — when a project is terminated — does not go up with each subsequent refinancing as happened in the case of the Delhi-Gurgaon