A long-pending proposal from highway developers seeking a relaxation of the exit clause — which allows an investor with deeper pockets to replace a promoter facing financial stress — has now been approved.

The move is likely to increase the M&A activity in the road sector.

The Cabinet Committee on Economic Affairs (CCEA) has approved this proposal. The substitution of developers can be done with the approval of NHAI, lender and private developer. At present, there are limits on the extent to which a developer can exit.   

“We hope, with this, a number of stalled (road) projects, can now move forward,” Union Finance Minister P. Chidambaram said.    

Earlier, the National Highways Authority of India (NHAI) Chairman R.P. Singh had said that banks should be allowed to replace a cash-strapped developer with a financially healthier substitute rather than declare the project a non-performing asset on its balance sheet.

This proposal had been supported by the Highways Ministry as well, which had felt that any developer unable to work on a highway development project should be allowed to exit as long as another firm is willing to take its place. The only condition for this change will be that the replacement must meet the same technical qualifications.

Also, in case the original project developer had defaulted in earlier obligations, then the NHAI can put a penalty on the original developer.

(This article was published on June 21, 2013)
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