The roads ministry’s assertions that the pace of construction is picking up—minister Nitin Gadkari never misses an opportunity to talk about how the build-out is going to hit the 30-km-a-day mark very soon—don’t match the reality on the ground. An NHAI spokesperson confirmed on Monday that just about 500 km had been awarded so far in the current fiscal, a number that isn’t encouraging when seen in the context of the target of 10,000 km. To be sure, it’s early days and, moreover, the new hybrid annuity model isn’t fully in place yet. That should be an attractive model from the developer’s point of view since the onus of acquiring land, getting environmental clearances, estimating the traffic and collecting the toll would all be with the government.
Meanwhile, the ministry and NHAI are hoping to be able to resurrect some 18 stressed projects that are stranded but more than half complete. This they hope to do by funding developers who aren’t able to bring in additional equity as a one-time assistance. Should they succeed, it would mean idle capital and assets are being put to work, critical at a time when developers are hard pressed to raise equity capital. Permitting easier exits for developers from completed projects is also a good move since that would allow capital to be invested afresh.
Meanwhile, there appears to be some action in the M&A space: FE reported on Monday that eight projects changed hands over the past year in deals worth close to Rs 800 crore. Moreover, there are several other promoters looking for exits from around 200 projects that are in various stages of completion or are complete. Should a few transactions materialise, it would allow the promoters to deleverage their balance sheets and repay lenders, leaving the latter to fund projects anew. If the bulk of these assets are offloaded at a significant discount, this time around India’s capacity creation will require a lot less capital than it has in the past. The good news is that toll collections have risen by about 7-8% last year, easing cash flows for a host of highways and, therefore, buyers would assess these projects more favourably. Too much capital has been squandered in the last investment cycle, partly because estimates were too optimistic and the regulatory environment unfriendly. This time around, capital must be used more efficiently.