Close to two-and-a-half years after highway developers sought easing of norms to exit completed projects, the Cabinet Committee of Economic Affairs (CCEA) has approved the proposal.
The CCEA has approved a comprehensive exit policy framework that now permits developers to divest 100 per cent equity two years after completion of construction. Wednesday’s CCEA decision will apply to pre-2009 projects, as projects after 2009 already have an exit clause.
In fact, during the UPA regime, the Cabinet had approved a specific route — a lender’s substitution mechanism — that never took off.
This decision will increase mergers and acquisitions in the roads sector. Companies such as Ashoka Buildcon, IRB Infrastructure, ITNL, L&T IDPL, GMR, IVRCL and Reliance Infrastructure have projects from the pre-2009 days. “The move will allow more domestic and foreign funds to come into the roads sector,” says SB Nayar, CMD, IIFCL.
“What remains to be seen is the valuation.More than half the projects are being valued at 30-40 per cent of the equity put in by the original investors,” Sudhir Hoshing, who formerly headed the roads business at Reliance Infrastructure, told BusinessLine .
There are 80 such pre-2009 build, operate and transfer (BOT) projects that have been completed. The locked equity in these projects works out to around ₹4,500 crore, according to an official release. When unlocked by allowing new investors in, this could support 1,500 km of new highways in public-private-partnership mode, and help in reviving the response to BOT (toll) projects.
During the last few years, PPP projects have been unable to attract bids — primarily because of a lack of availability of equity in the market among qualified bidders. The CCEA decision will help unlock equity from completed projects, making it potentially available for investment into new projects.
In another move, the CCEA has allowed NHAI to extend loans to projects at an advanced stage of completion but stuck due to lack of additional equity or a lender’s inability to disburse further.