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Construction major L&T, the concessionaire implementing the ₹16,375-crore Hyderabad metro rail project through an SPV, is faced with a cost overrun of about 16 per cent due to project delay and delay in securing the right of way in the Old City segment.
The project cost, which has increased to ₹18,975 crore, will require additional funds of ₹2,600 crore and L&T will have to pump in additional equity of ₹800 crore.
Of the three corridors, two have been fully completed, and the work on the third corridor connecting Secunderabad with the Old City is now under way.
However, work on a stretch of about 6 km that goes beyond the Musi river and connects the Falaknuma, is still languishing.
India Ratings & Research has affirmed the loans of L&T Metro Rail (Hyderabad) Limited at IND BBB+, Outlook Stable.
In its rating report, the Fitch Group company said, “A significant increase in debt, higher than the original estimated, could further stress the cash flows an impact the debt coverage metrics.
The sponsor L&T is expected to bridge the additional fund requirement on a timely basis to complete the project within the stipulated timelines.”
According to Lenders Independent Engineer report, there has been no decision regarding the construction of the line that passes through the Old City. Since the project involves a number of specialised global vendors, this delay is seen as adding to cost escalations.
TOD model
In its report, the rating firm also sought to mention that further delay in project completion, non realisation of transit oriented development by October 2018, lack of clarity on the tie up of funds for the cost overruns, could result in rating downgrade.
As of December 2018, L&TMRHL has injected equity of ₹2,427 crore into the project and the total loan drawn was ₹10,759 crore. It has raised ₹1,000 crore through NCDs as a part of debt and the project received 83 per cent of ₹1,458 crore viability gap funding.
While the SPV is entitled to transit oriented development, the revenue model has gone through a change. As opposed to recurring rental income, it is now a monetisation approach.
The commercial operations date has been extended by three months from April 2019 to July 2019.
Concession agreement
As per the concession agreement, the project finance package entails the need to provide equity of 21 per cent of the project cost and meet up to 5 per cent of the project cost overrun and also provide cash support during th operation phase.
Of the 72-km three corridor elevated metro line, thus far a stretch of about 56 km across two lines, including one connecting to the IT hub of Hitec City is ready and the work on the third one line minus the Old City is at advanced stage.
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