Mumbai-based MEP Infrastructure has completed the financial closures for five out of six hybrid annuity model (HAM) projects that it won last year. The financial closure for the sixth project, the 40-km Mahua-Kagadavar stretch under the National Highways Development Project (NHDP) Phase IV, in Gujarat, is expected to be announced by Friday, March 17.
Achieving financial closures for the newly-introduced HAM road projects has been challenging for most road developers, as lenders have adopted a cautious stance and voiced certain apprehensions with the model. So far, the National Highways Authority of India (NHAI) has cancelled three projects, two due to problems with respect to financial closure.
Given their mixed experience with the build, operate, transfer (BOT) model, banks and financial institutions are being choosy about funding HAM projects. The concerns of lenders stem from the very small equity risk that the concessionaire is taking. Given that 40% of the project cost comes as a grant from NHAI, the concessionaire’s equity contribution is reduced to just 15% of the remaining 60% of the project cost, or effectively, a mere 9%. Lenders have pointed out the promoter has virtually no skin in the game.
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“Little equity contribution on the part of the developer continues to be an issue,” Sanjeev Kaushik, deputy MD, IIFCL, told FE. However, Kaushik added, “Since the disbursement is now milestone-driven, the concessionaire will have to show their portion of the equity before the money is disbursed. This issue will come up at the time of disbursement, so it is premature to comment on it now.”
This is the reason, says Jayant Mhaiskar, VC & MD, MEP Infrastructure, that the company recently tied up with Chinese state-owned firm Longjian Road & Bridge Company, to bid for more projects. “San Jose India Infrastructure, our first partner with whom we won the first six projects, had some equity constraints so we have now tied up with Longjian from China. In fact, we have already jointly bid for four HAM projects in February. We hold almost equal equity in the JV we have created,” Mhaiskar said.
For the first six projects, MEP Infrastructure had tied up with San Jose India Infrastructure to create a joint venture company. MEP Infrastructure put in most of the funds, amounting to 76% in the JV while San Jose holds the remaining 24%.
