Comments
Ninety per cent of all awarded hybrid annuity model (HAM) projects worth over Rs 1 lakh crore have achieved debt funding.
And this puts to rest apprehensions of bidding intensity in hybrid annuity model projects offered by the National Highways Authority of India (NHAI) and consequent fear that many of these projects will not achieve debt tie-up, according to Crisil.
An analysis shows that a moderation in the pace of highway projects awarded in fiscal 2019 allowed developers the latitude to arrangefunding and focus on execution. Less than 3,000 km of projects were bid out in fiscal 2019 compared with an all time high 7,400 km in fiscal 2018.
The debt tie-ups have been driven by low risks in HAM, prudent bids, and track record of execution of strong and experienced sponsors.
Sachin Gupta, Senior Director, CRISIL Ratings, “There were apprehensions because 8-10 bidders had garnered lion’s share of HAM projects leading to concentration risk.”
The progress of projects is tardy given the slow traction on ‘Appointed Date’ – which marks the start of a project concession period. Only 60 per cent of the 108 HAM projects bid till the middle of last fiscal have received it so far.
As a blessing in disguise, NHAI notifies the Appointed Date only when majority of the land (80% for HAM projects) is procured. This ensures that when project is under construction, there is limited risk of delays due to non-availability of land.
Wary of this, bankers stipulated that debt drawdowns are contingent upon 80 per cent right of way (RoW) being available. Previously, only notification of land by the government had to be completed for drawdowns to begin.
These measures have given a new lease of life to the sector that has been plagued by land and approval issues, leading to stalled projects.
Sushmita Majumdar, Director, Crisil Ratings, “Given at least 40 per cent of the existing order book is HAM, developers need to bring in equity to manage their balance sheets. That means, the ability to sell stake in projects and free up capital is crucial. We have seen some deals happening already. This would help sustain growth in order book without impacting credit risk profile.”
Crisil believes HAM will remain a good mode for highway contracts and will be preferred by the NHAI, EPC players and lenders. The key to this will be timely construction, completion of projects and receipt of payment from the NHAI.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.