While the initial plan was to monetise public-funded highway projects in two tranches totalling 1,073 km in the current fiscal, the NHAI may end up exercising the option thrice in 2019-20 on the government's prodding.
Facing a shortage of funds to execute its ambitious highway development programme, the National Highways Authority of India (NHAI) will explore options like securitisation of toll receipts and launch of an infrastructure investment trust (InvIT) even as it proposes to ramp up its asset monetisation programme through the toll-operate-transfer (ToT) route.
While the initial plan was to monetise public-funded highway projects in two tranches totalling 1,073 km in the current fiscal, the authority may end up exercising the option thrice in 2019-20 on the government’s prodding.
“There is a push from the government from the highest quarter. In fact, we are being encouraged to offer as much through ToT and asset recycling as possible. We have been conservative on this. We are asking ourselves whether the market has appetite or not,” NHAI chairman NN Sinha said addressing potential investors for the third ToT bundle to be given on lease for 30 years against upfront payment.
The NHAI had raised Rs 9,681 crore in the first TOT tranche, but a similar attempt thereafter fell through. The total length of highways to be offered for third bundle is 587 km and the authority aims to generate at least Rs 4,995 crore. A fourth bundle of 486 km is also in the offing in the current fiscal through which it aims to garner Rs 4,056 crore.
The Cabinet Committee on Economic Affairs had in 2016 authorised the NHAI to monetise 75 public-funded highway stretches with road length of around 4,500 km. The NHAI hopes with the development of new roads, the length for potential offering through ToT would increase to 15,000 km by 2024-25.
While the total budgetary support for the NHAI in 2019-20, including estimated cess and plough back of toll and highway monetisation proceeds, is Rs 36,691 crore — around 1.7% less than Rs 37,320.63 crore accorded in 2018-19 (RE), it has been tasked with awarding 6,000 km of highways and construct a record 4,500 km in the current fiscal. This has necessitated raising of funds.
NHAI’s borrowing limit for the current fiscal has been enhanced to Rs 75,000 crore from Rs 60,000 crore in 2018-19. The NHAI needs funds to service its mounting debt as well. Last fiscal, it awarded 2,222 km of highway projects, less than 7,397 km awarded in 2017-18. It constructed 3,320 km in 2018-19, a little higher than the 3,071 km in 2017-18.
On behalf of the authority, the Ministry of Road Transport and Highways has already floated a Cabinet note seeking the approval for setting up an infrastructure investment trust (InvIT). The proposal also needs Parliament’s approval. NHAI’s director finance Asheesh Sharma said InvIT gives more flexibility and fits the demand for all kinds of investors, even smaller ones.
InvITs are innovative, tax-efficient vehicles that allow developers to monetise revenue-generating real estate and infrastructure assets, while enabling investors to invest in these assets without actually owning them. Such monetisation benefits developers by allowing them to release capital for funding new projects and provides liquidity to investors, as units of the trust are listed on the exchanges.
The NHAI board and Sebi have already approved the InvIT. Using the third option – securitisation of tolls – the NHAI wants to raise funds from stretches where the traffic is already high and needs capacity augmentation in next few years. “Suppose, there is a road project which is not fit for ToT in the sense that traffic is already high and where augmentation of capacity is required in next seven-eight years. In such cases, we are looking at whether we can raise funds through securitisation of tolls,” said Sharma.
Infrastructure assets such as roads are suited the best for securitisation as they ensure stable cash flows backed by long-tenure concession agreements and higher recovery rates.
Sharma said the subdued market condition should not worry the authority as patient capitals have no lucrative alternative option but to invest in such assets. In terms of stable revenue, highway is perhaps the best option.