Recognising that creating a robust secondary market is key to reviving investor interest in highway projects and freeing equity locked up in completed projects, the National Highways Authority of India (NHAI) has proposed allowing private equity (PE) players and financial firms to pick up stakes in existing projects.
In a note to the finance ministry, the authority has proposed allowing ownership change in build-operate-transfer (BOT) highway projects soon after they begin commercial operations.
Currently, for projects floated after November 2009, equity stake transfers up to 100% is allowed two years after project completion. For projects prior to this, it is mandatory for a developer to hold a 51% stake in the concessionaire company until two years after project completion. Under the new proposal, not only the post-November 2009 projects, even earlier projects will be allowed stake transfer as soon as the projects are commercialised.
However, this comes with a rider. The change in ownership will be allowed by NHAI only after assessing the technical and financial capability of new investors. Such a step will be taken after the prospective arrangement proposed by the investors for corridor management, either directly or through sub-contractors is examined and put before the NHAI board for approval.
The move follows the falling response to highway projects in the last 3-4 months. According to sources, NHAI has highlighted the fact that both debt and equity sources are slowly drying up for new projects, leading to lacklustre response to projects. Contrary to this, the secondary market looks promising with many investors showing interest in buying completed projects with robust revenue streams.
?Some PE firms are looking into the possibility of buying stakes in some running projects; if such investments are allowed, the sector can get a boost,? an official source said.
The authority is also of the view that the government should encourage emerging specialisation in the highways sector so that projects not only get funds but are also maintained with equal efficiency.
?Considering the uncertainties in the policy environment and ambiguity in the MCA on termination events and legal directions, investors who are keen to invest in the projects are apprehensive. The new policy is aimed at addressing these concerns,? an NHAI official said.
It is understood that the authority was approached by various sets of investors who are not just interested in completed projects but are also interested in OMT contracts. The authority also feels institutional investors interested in buying running projects if allowed can also take assistance of companies who have experience in corridor management.
