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Accessing foreign funds might become relatively easier for highway developers with the Budget proposing to allow FII investments in bonds of unlisted special purpose vehicles of infrastructure companies.
“As most of the infrastructure companies are organised in the form of special purpose vehicle (SPVs), FIIs would be permitted to invest in unlisted bonds with a minimum lock-in period of three years. However, the FIIs will be allowed to trade among themselves during the lock-in period,” the Finance Minister stated on Monday.
“Accessing foreign funds is likely to become easier for all highway developers with this proposal,” said Mr M. Murali, Director General, National Highways Builders Federation (NHBF).
Mr Gurjeet Singh Johar, Chairman, C & C Constructions, welcomed the move allowing FIIs to invest in unlisted bonds with a minimum lock-in period of three years. C&C Construction has five special purpose vehicles – four for implementing highway projects and one for developing a bus terminal (under JNNURM).
The proposal to increase MAT might marginally hit their profitability, though it is likely to be mitigated to some extent through the reduction in tax surcharge from 7.5 per cent currently to 5 per cent.
“Hike in minimum alternate tax (MAT) rate to 18.5 per cent from 18 per cent will hit the profitability of developers,” said Mr Murali.
Cement prices are likely to move up because of the Budget proposals, which could hit the players with build-operate-transfer projects. The EPC projects have built-in price escalation clauses, but BOT players have to bear the hike in costs.
“There are four key raw materials – cement, steel, bitumen and oil – used in the highway construction. Higher cement costs will hit the build-operate-transfer (BOT) players,” said Mr Murali.
C&C Construction's Mr Johar stated that the extent of cement used in a highway project could vary widely and C&C's highway projects will not be hit.
Two more proposals with regards to highways machinery could ease cost of building highways. “Full exemption from basic customs duty is being extended to bio-asphalt and specified machinery for its application in the construction of national highways,” stated the Finance Minister.
But bio-based asphalt machinery is not used significantly in national highways construction.
A financially sound NHAI also augurs well for all highway developers who welcomed the move allowing NHAI to mobilise Rs 10,000 crore through tax-free bonds.
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