Logistics

ToT highway project: ICICI Bank takes over ₹2,000 cr debt financing from Yes Bank

P Manoj MUMBAI | Updated on September 12, 2019 Published on September 12, 2019

YES Bank had underwritten the debt portion of ₹5,000 crore last August helping the Macquarie Group to achieve financial closure for the NHAI project.

ICICI Bank has taken a bite of the debt funding for India’s first Toll-Operate and Transfer (ToT) highway project by taking over about ₹2,000 crore from the original lender YES Bank Ltd in a move that will likely give a much-needed push and confidence among lenders to fund such deals amidst a general slackness in funding core projects.

YES Bank had underwritten the entire debt portion of about ₹5,000 crore last August, helping the successful bidder, Australia’s Macquarie Group, to achieve financial closure for the project hours before a deadline set by the National Highways Authority of India (NHAI) ended.

This has allowed Macquarie Group to pay upfront ₹9,681.5 crore to NHAI for the deal which it won through an auction.

ToT model

Under the ToT model, the right to collect user-fee or toll on selected national highway stretches built through public funding will be auctioned and assigned to a concessionaire for a period of 30 years against an upfront payment of a lump-sum amount to the government.

The concessionaire is also responsible for the operation and maintenance of the roads during the tenure.

Read also: NHAI woos investors for toll-operate-transfer projects

Macquarie will be required to invest a further ₹1,000 in this regard, taking the total project cost to about ₹10,600 crore. Apart from the ₹5,000 crore loan sanctioned by YES Bank, the Macquarie Group and its associates brought in more than ₹5,000 crore as equity into the project, an NHAI official said.

The ₹1,000 crore capital augmentation to improve the road asset will also be funded by YES Bank. This will be availed by Macquarie at a later date.

“The entire debt was initially underwritten by YES Bank, but they don’t want to hold on to the full portfolio. ICICI Bank has already taken ₹2,000 crore out of the sanctioned amount of ₹5,000 crore,” a banker familiar with the deal said, asking not to be named.

YES Bank, struggling to raise funds for growth, is “still syndicating the balance ₹3,000 crore loan but is looking to down-sell its portion”, the banker said, adding that “other lenders were reluctant to step-in”.

“In ToT projects, foreign investors are coming, but they need co-operation from Indian banks,” Road Transport and Highways Minister Nitin Gadkari told investors and bankers on Monday during a roadshow organised by NHAI in Mumbai.

“The problem is that Indian banks are not ready to do financial closure with them; then it is meaningless to go for ToT. You need to find a way out. Timing is most important for financial closure, otherwise the successful bidder will have to pay penalty,” he said.

Besides, the ToT concessionaire is allowed to collect tolls from the day financial closure is achieved.

State Bank of India, the country’s largest lender, says that it was “comfortable” with funding ToT projects.

Red more: SBI mulls lending ₹35,000 cr to NHAI for highway projects, says Rajnish Kumar

“The only problem with ToT is that banks may feel there is aggressive bidding. If there is aggressive bidding, we will ask for sponsor support, good coverage ratios and sufficient cushion for operation and management expenses,” SBI Chairman, Rajnish Kumar, said.

“NHAI should also reconcile to the fact that if it is all about maximisation of value and money (in ToT), then financing issues can crop up. There will be a difference of opinion and my experience as a banker has been, wherever there has been competitive bidding, there will be aggressive bidding and later on things won’t turn out the way it should have been,” he added.

Also read: Highway development economically viable: Nitin Gadkari

The first bundle of 9 highway projects, spanning 681 km of roads in Andhra Pradesh and Gujarat, was awarded to Macquarie for ₹9,681.5 crore, which was 1.5 times the reserve price of ₹6,258 crore set by NHAI.

Published on September 12, 2019
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.