Share transfer process to IDFC not started yet
With DSC, the current concessionaire of the Delhi-Gurgaon Expressway, not initiating the share transfer process in favour of prime lender IDFC, the National Highways Authority of India (NHAI) has decided to issue a show-cause notice to it for terminating its contract to operate the project.
Sources said that notice, to be served on DSC shortly, would apart from questioning its failure to transfer the shares also highlight its failure to meet other benchmarks like easing the traffic flow, fall in toll collection and bad maintenance of roads. The NHAI feels that the DSC is not depositing the toll proceeds in the designated escrow account.
?DSC has not undertaken any improvements as per the MoU signed for easing traffic congestion like introducing electronic tolling. It has not done anything so far to transfer the equity shares to IDFC; therefore, we have decided to send a show-cause notice as to why its contract should not be terminated,? a government official involved in the process told FE.
NHAI had on January 30 approved a proposal allowing IDFC to buy a 74% stake in the expressway project from DSC. Of the remaining 26%, 24.8% was to be with DSC and 1.2% with the Jaypee Group. IDFC was to pick up DSC?s entire debt of R1,600 crore, so the 74% stake transaction was to take place for a token amount of R1.
On its part, after taking over the project, IDFC was to give the day-to-day management of the expressway to Feedback Brisa Highways OMT, a 60:40 joint venture between Feedback Infra and Brisa. IDFC, in turn, owns a 24% stake in Feedback Infra.
However, so far DSC has not initiated the share transfer process and therefore IDFC is unable to enforce the new arrangement.
It would be not for the first time that NHAI would be sending a termination notice to DSC.
The first time such a notice was sent was in February 2012 alleging operational incompetence and raising of loans of Rs 1,275 crore from IDFC without prior approval from the authority. Subsequently, DSC had moved the Delhi High Court challenging the NHAI move. A court-initiated settlement was reached between the two under which DSC was required to construct more toll plazas along the expressway to ease traffic but NHAI remained sceptical of the developer?s ability to run the project.
Later, in December 2012, IDFC entered into a memorandum of understanding with DSC to acquire its equity shares and discharge it off its obligations.
In fact, NHAI is keen that IDFC pick up the entire 100% stake in the project but it cannot be done at this stage because of some policy restrictions in the model concession agreement. The issue is likely to be taken up once the restrictions are lifted through suitable amendments. The ministry of road transport and highways is separately in the process to seek a Cabinet approval for an easier exit policy for road developers which would allow the concessionaires to make a complete exit immediately after commencement of commercial operations. Under the current policy, the original concessionaire has to keep at least a 26% stake for the entire concession period. A 100% exit is possible only once the new policy is in place.
Once the 100% rights go to IDFC, the financial institution will be collecting toll till 2023 to recoup the funds. For NHAI, salvaging the project is crucial in sustaining investor interest in public-private partnership projects in the sector.
Dec 2011: NHAI sends termination notice to DSC
Feb 2012: NHAI sends termination order to DSC
Feb 2012: DSC moves Delhi HC challenging NHAI
Sep 2012: DSC & NHAI agree to a settlement in Delhi HC
Dec 2012: IDFC signs MoU with DSC to buy equity & discharge the obligations of the concessionaire
Jan 2013: NHAI board approves proposal allowing IDFC
to acquire 74% equity from DSC