Bankers seem to be warming up to the road projects under the hybrid annuity model (HAM) with 22 projects among 43 awarded by the National Highways Authority of India (NHAI) achieving financial closure. Of the remaining, 15 projects are awaiting financial closure (soon most of these were awarded as recently as March) while one project has been cancelled. FE could not ascertain the details of five more projects. HAM has been the preferred mode by NHAI for awarding road projects, with 54% of the projects being awarded under this model in FY17.
Sadbhav Engineering has been the most active bidder, winning six out of 43 HAM projects. In a research note earlier this month, investment banking firm Jefferies India said that HAM projects belonging to reputed players only were getting financially closed. “Bankers remain wary of new players due to lack of construction experience and low equity commitment,” said the report. For instance, with about 80% of the promoters’ having pledged their share, MBL Infrastructure has yet to achieve financial closure for two projects while one project they had won was cancelled in early 2017.
Under HAM, 40% of the project cost comes as a grant from NHAI, while the concessionaire’s equity contribution is 15% of the remaining 60% of the project cost, which is effectively just 9%. India Infrastructure Finance Company (IIFCL) has financed a number of HAM road projects along with both public and private sector banks such as HDFC Bank and Yes Bank. The largest state-run lender, State Bank of India (SBI), which had remained wary of these projects, according to sources, has also recently financed one of the HAM road projects, i.e. — a project that was awarded to Sadbhav in Gujarat.
“There were 18 (HAM) projects lying with IDFC and a few were with State Bank of India. Bank officials had little confidence earlier. But now, we don’t have a problem. They have cleared all of them,” road minister Nitin Gadkari told FE earlier this month.
IDFC Bank officials were not immediately available for comment.