The Hindu Business Line : Highway developers await stimulus package fine-print

New Delhi, Dec. 8 Highway developers are waiting for the details of the Government announcement allowing India Infrastructure Finance Company Ltd (IIFCL) to raise funds by issuing tax-free bonds to support a public private partnership (PPP) programme of Rs 1,00,000 crore in the highways sector before proceeding.

“The current announcement does not spell out the exact details of the nature of benefits that will accrue to developers. So, developers are adopting a wait and watch policy,” Feedback Ventures’ Chairman, Mr Vinayak Chatterjee, said.

Ready to bid

On whether the announcement is enough for road project developers to start bidding for over 20-odd National Highways Authority of India (NHAI) projects in the financial bidding stage that are getting delayed, Mr Chatterjee said, “It isn’t.”

“The breadth and depth of the package is lower than what the industry expected,” Mr Chatterjee said, adding the only positive outcome of the announcement is at least the idea — of Government refinancing loans to subsidise long-term lending to the infrastructure sector — has been accepted.

Infra infusion

While welcoming steps taken by the Government to increase the infusion of funds to the infrastructure sector, Mr M. Murali, Director General, National Highways Builders Federation (NHBF) said, “We have to wait for the coupon rate at which IIFCL is able to raise the bonds. This move will definitely give the necessary boost in completing ongoing projects, which are finding it difficult to raise funds.”

“For design-build-finance-operate-transfer highways projects to be viable, developers need long-term funds to be made available at 9-10 per cent levels by banks. It is also important to move fast to ensure that some benefits accrue to the upcoming projects,” Mr Murali said. NHBF is a lobby body of highway developers and includes Larsen and Toubro, Nagarjuna Construction, Soma Enterprises as its members.

NHAI Hurdles

In the past few weeks, National Highways Authority of India (NHAI) has not been able to attract financial bids for over 20-odd highways widening projects due to a variety of reasons that include cherry picking by developers for attractive projects and the banks’ unwillingness to lend.

For over a year now, NHAI has not been able to award any new project because of reasons that include bidders opposing certain clauses in the bidding procedure.

Five NHAI projects — to convert 882 km of four-lane national highways into six lanes at a total cost of Rs 10,912 crore — have not been able to achieve financial closure. The agreements for these projects were signed about a year ago.

The Government has decided to authorise the IIFCL to raise Rs 10,000 crore through tax-free bonds by March 31, 2009. These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors, said an official release.

In this way it is expected that IIFCL resources used for refinance can leverage bank financing of double the amount. Depending on need, IIFCL will be permitted to raise further resources by issue of such bonds, it added.

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