NHAI defers plan to generate funds by leasing off its assets

By: |
May 7, 2020 3:23 PM

The National Highways Authority of India (NHAI) has put its plan to monetise operational publicly-funded highway projects on hold for two months, given that investors might not commit long-term investments at this juncture, due to uncertainty over toll collections.

CRISIL Research wrote on Wednesday traffic on Indian highways could de-grow 16.5% this fiscal, which would cut toll collections by 13% in base case.

The National Highways Authority of India (NHAI) has put its plan to monetise operational publicly-funded highway projects on hold for two months, given that investors might not commit long-term investments at this juncture, due to uncertainty over toll collections. This implies that the authority, which is facing funding constraints amid a prolonged sluggishness in private investments, might have to struggle to stick to the announced pace of highway awards and construction.

CRISIL Research wrote on Wednesday traffic on Indian highways could de-grow 16.5% this fiscal, which would cut toll collections by 13% in base case. “Consequently, toll collections and remittances from existing roads will fall a sharp 13% assuming there’s only a 57-day lockdown (from March 22 to May 17). That decline will be an even sharper 17% if the lockdown is extended by another two weeks,” it wrote.

The NHAI has three instruments in its arsenal to raise fund through monetisation of its assets of which two – Infrastructure Investment Trust (InvIT) and toll secrutisation – are untested so far. The other one, toll operate transfer (TOT) model, has been successfully exercised twice, but one attempt had to be aborted due to investors’ apathy.

Under the TOT model, publicly-funded operational highway projects are given on long-term lease basis to domestic and foreign “patient capital” investors. Successful bidders are required to pay the lease amount upfront, which they can recoup with returns by collecting toll, over the lease tenures of 15-30 years.

“Covid-19 has disturbed all plans. Our asset monetisation programme will depend on the market. Today, as the traffic uncertainty is so much, no TOT tender will come in the next two months. Hopefully, after two months, we should be able to do it. TOT-4 will also be deferred by another two month,” NHAI chairman SS Sandhu told FE.

In the Budget for 2020-21, NHAI was authorised to monetise “at least 12 lots of highway bundles of 6,000 km within 2024”, a process which would have helped the authority to raise up to Rs 60,000 crore, at an annual average of Rs 15,000 crore.

In 2018-19, a total of Rs 24,396 crore was collected as tolls, at a monthly average of Rs 2,033 crore. India had 570 operational fee plazas on the national highways across the country, as on October-end 2019.

The ToT bundle-4, for which the authority has set the minimum bid price at Rs 2,166 crore, has already seen multiple extensions of deadlines to its present to May 15. It will also be deferred by two months.

Experts on the sector said that the NHAI should do well to defer its asset monetisation plan as in view of the current uncertainty regarding expected traffic, it will be difficult for potential investors to value assets in a fair manner. Also, potential investors, such as infrastructure investment funds and private equity funds, already have a large portfolio of road assets. With their existing assets losing value, it will be difficult for existing investors to try and invest in new assets.

Feedback Infra chairman Vinayak Chatterjee said, “Now, nobody has any certainty or visibility on how the trajectory of growth, freight movement or traffic or the economic growth is going to happen. Under these circumstances, no investors will bid and even if they do, they would bid so cautiously that it wouldn’t be worth the while. It is in the country’s interest NHAI should postpone its monetisation plan by one year.”

Akshay Purkayastha, director, transport, Crisil Infrastructure, said the continuous tumult in the broader economy will challenge the ability of potential investors to fairly value NHAI assets at this point of time.

ICRA’s Rajeshwar Burla said for asset monetisation, investors would be more interested to get involved in a steady situation. “Prevailing uncertainty and revised low GDP growth rates for FY21 may put off the investors for some time. These plans may get deferred for a couple of quarters,” he said.

Fund mobilisation through the asset monetisation programme is crucial for NHAI as it is increasingly awarding projects through the engineering, procurement and construction (EPC) route, where it is to bear all the expenses. It is in dire need of funds to finance its burgeoning debt which reached Rs 1.8 lakh crore by the end of March 2019. Analysts estimate NHAI’s borrowings to go up to Rs 3.31 lakh crore by FY23.

On the other hand, NHAI has a mandate to develop 34,800 km (including 10,000-km residual NHDP stretches) highway projects under the first phase of Bharatmala Pariyojana, with an estimated outlay of Rs 5.35 lakh crore. A total of 255 road projects with an aggregate length of about 10,699 km have been approved till October 2019 under the phase with estimated total cost of Rs 2.65 lakh crore.

The authority hopes to award a minimum of 4,000 km and develop 4,500 km highway length in the current fiscal compared with 3,979 km construction and 3,200 km awards in 2019-20, Sandhu said.

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