Over a dozen road projects conceived under the hybrid annuity model are stuck for want of financial commitments while a couple have been cancelled by the NHAI. Although nearly 30 such projects were awarded till end July, some of these could lapse since the financial commitments need to be in place within 150 days of the concession agreement being signed.
Smaller firms in particular are unable to secure the funds for projects. Spokespersons for Eagle Infra and DRA confirmed to FE they were yet to close out the funding for their projects won in April and May, respectively. Interestingly, a handful of builders appear to have most of the projects awarded so far.
While as many as six projects have been bagged by the MEP Infra- San Jose alliance, five have been picked up by Sadbhav Infrastructure. These developers have either managed to arrange the finances for most of their projects or are in an advanced stage of doing so. Among others Ashoka Buildcon and Welspun
have won a project each and have tied up the finances while Dilip Buildcon and PNC Infratech are expected to do so soon.
The pace of HAM projects awarded has gone up in recent months with a total of 39 projects worth Rs 34,800 crore having been bid out across 2,170 km crore till January 12, 2017. However, bankers remain somewhat cautious of lending to the roads sector despite the fact that the HAM structure entails lower risks for the developer because NHAI assumes the responsibilities of acquiring the land, estimating the traffic and collecting the toll and the concessionaire takes on virtually no risk.
Fe had reported on November 21 that two projects—with Gawar Infrastructure and Overseas Infrastructure Alliance (OIA)—had been terminated. At that time, former NHAI chairman Raghav Chandra had denied that bankers’ were uncomfortable with lending to the two projects or to the winning bidders.
Given their mixed experience with the 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 concenssionaire’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.
A senior public sector bank executive told FE, several large banks have indicated their reluctance to lend to hybrid projects if the promoters’ equity is effectively just 9%. “This is too small a commitment on the part of the promoter and none of the proposals from developers has been closed yet,” the executive added. To assuage their concerns it has been decided that NHAI’s grant of 40% which was to have been milestone-based with most of the payments coming at a later date, will now given at the early stages of construction.
Nevertheless unlisted companies and even contractors who have won HAM projects are finding it tough to secure funds. Alok Deora, analyst at IIFL Wealth says HAM projects have attracted the interest of a clutch of little-known, relatively small, unlisted companies.
“Such companies may find it difficult to raise funds for projects and there could be a couple of cancellations. This could mean fewer kilometers awarded compared to targets,” Deora said. Devam Modi, analyst at Equirus Securities points out the discomfort of lenders with the balance sheets of smaller companies coupled with their caution on lending to roads could hold up projects.
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Privately-owned Mumbai-based Atlanta Group and Gujarat-based Montecarlo Limited are among an increasing number of unlisted companies and contractors interested in HAM road projects. Other names include Backbone, S P Singla, B Seenaiah and GR Infraprojects as well as regional contractors like Gawar Construction, and Dineshchandra R Agrawal (DRA).