While at least a hundred road projects entailing an investment of `25,000 crore are on the block, most of these may not be viable, say industry experts. Approximately half these ventures have been executed in the PPP (public- private partnership) mode.
In the absence of a framework that facilitates the resolution of disputes, and helps ease stress, few assets are expected to change hands in the near term. Currently, there are very few revenue-generating projects on the block.
MK Sinha, managing partner and CEO, IDFC Alternatives, says a framework to resolve stress is still not in place. Moreover, issues relating to land acquisition, clearances remain a challenge. “There are few completed assets and a major chunk of assets are stressed for which there is little interest among investors,” Sinha said.
Suresh Goyal, executive director, Macquarie Infrastructure & Real Assets Projects, believes legacy issues have eroded capital values. “Many of the assets are unviable because lenders and sponsors are less willing to take a hair-cut, and to sell these to investors willing to commit capital. Until banks pressure sponsors to sell the assets, little will change,” Goyal said.
In the past two years, barely two dozen deals have been struck; many of these have been single assets valued at between Rs100-Rs 300 crore. However, there was one large portfolio transaction, worth over `2,600 crore, in which Gammon Infrastructure Projects sold six road assets and three power assets to Canada-based Brookfield AMC.
With few operational assets available for sale, valuations are inching up. According to Goyal, the presence of new sources of capital like pension and sovereign funds, investment trusts and low-cost debt, has driven up expectations of sellers.
Meanwhile, bidding activity has been slow due to land acquisition issues, analysts at Jefferies wrote in a recent report, who pointed out that NHAI wants to award projects only after 90% of the land has been acquired, leading to further delays. “Post a flurry of awards in March 2017 (1,355 kms, 32% of FY17 awards), channel checks suggest that bidding activity has been slow in April-May,” they wrote.
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Many of the larger infra firms—Larsen and Toubro (L&T), HCC, Gammon Infrastructure–have stayed away from HAM (hybrid annuity model) projects partly because they have had bad experiences or are involved in litigation.