Infrastructure companies going slow on highway projects

V. Rishi Kumar Hyderabad | Updated on November 17, 2017

Bumpy ride: Most infrastructure firms are faced with difficulties of high interest costs and challenges of achieving financial closure.

Faced with a tough business environment, infrastructure and construction companies are treading cautiously on tollways and build, operate and transfer mode (BOT) PPP projects of the National Highway Authority of India (NHAI).

They now prefer the engineering, procurement and construction (EPC) mode projects .

IVRCL on Monday indicated that it has decided to take a holiday from bidding for BOT projects to focus on EPC. This is not an isolated case; most infrastructure companies are in a pause mode re-strategising looking at EPC projects.

Interaction with leading infra sector firms shows that they are all faced with difficulties of high interest costs, challenges of achieving financial closure, as banks and lenders have hit sectoral cap, and have been demanding more equity in a market where equity is hard to come by.

M. Gautham Reddy, Executive Director of Ramky Infra, said the number of projects that have come up for participation are less and companies have become extra cautious, given the market conditions. They are looking at the opportunity to take up EPC mode projects where NHAI will pump in funds.

The Chief Financial Officer of Madhucon Projects, S. Vaikuntanathan, said most companies enjoy being EPC contractors, but NHAI wanted BOT projects, forcing developers to take to them.

“Developers are facing difficulties in meeting the equity requirements for BOT projects as equity markets have dried up and foreign investors are wary to come in. Most developers want to exit, making it a tough situation,” Vaikuntanathan said.

Madhucon has nine road projects with four being operational, three under development, and two close to financial closure.

T. Adi Babu, Chief Operating Officer, Finance, Lanco Infratech, said with lenders demanding higher equity participation up from 25 to even 40 per cent, difficulties in securing right of way and local implementation issues, are all creating problems for developers.

Aggressive bidding

“The aggressive bidding in the past by some companies is also taking a toll. All projects are not like the Gurgaon highway,” he felt.

R. Balarami Reddy, Executive Director Finance, said the traffic projections are often high and this causes unexpected expectation from developers. This is also one of the reason why NHAI needs to look at PPP mode projects closely and restructure contracts.

An independent regulator would help.


Published on September 11, 2012

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