The government is set to give a renewed push to the pure-play build operate transfer (BOT) projects in the highway sector by tendering out a clutch of projects and sweetening the model concession agreement, but the bulk of old BOT projects that went into default over the last decade are yet to find resolution.
According to an Icra study of 120 BOT road projects which started defaulting between FY11 and FY22, only a fourth have come out of default. “The total debt outstanding for the 120 stressed assets stood at Rs 62,000 crore. One-fourth of road projects have come out of default through various routes viz. stake sale and substitution wherein strong sponsor groups/ investors (private equity funds) have taken over the stressed assets, improved cash flow position, and restructuring. Through this, Rs. 20,000 crore of debt has been regularised. However, balance Rs 42,000 crore of debt is still in default or is awaiting settlement in terminated projects,” Rajeshwar Burla, Group Head, Corporate Ratings, wrote.
The BOT projects plunged into crisis largely because traffic fell short against aggressive growth assumptions.
Of the 120 projects, 86 have defaulted during the operational phase while 34 failed to service debt during the construction phase. “In case of operational projects, majority (57%) of the defaults are on account of lower-than-estimated traffic, 24% are attributable to delay in annuity or grant payments, suspension or exemption of toll collections by the authority and 19% of the defaults are solely attributable to sponsors,” as per Icra.
Among the under-construction projects, around 41% of the projects defaulted during the construction phase due to delay in equity infusion by sponsor for their stressed financial position. In 21% of the projects, the defaults occurred due to the reasons attributable to authority and the remaining 39% is on account of both authority and sponsor-related issues.
However, according to the agency, with availability of long-term traffic data patterns across various geographies, the stakeholders are now better placed to validate the traffic assumptions. Further, with the implementation of FASTag through which 97-98% of toll collections are made, the toll leakages got arrested to a significant extent. “However, the alternate route/mode risk continues to remain a major risk,” it added.
“Deterioration in financial profile of sponsor and delay in securing right of way (RoW) are the primary reasons for defaults in under-construction projects,” Burla noted.
In a recent interview to FE, Union minister for road transport and highways Nitin Gadkari noted that BOT projects have not been tendered out for long. Expressing confidence about investor interest in such projects, he said, “things have changed in a big way. I am sure many BOT projects will now be tendered out. There should be at least 20-25 interested parties who can take up BOT projects for the segment to turn around.”
Virendra Mhaiskar, CMD, IRB Infrastructure Developers had told FE earlier that the concession agreements for BOT projects are “well-balanced” with a floor-and-cap model where if the traffic is less, one gets extension of the concession period. He said the the government should come out with more projects on BOT model.