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Business News/ Industry / Infrastructure/  About 7,500km of BOT highway projects at risk: Crisil
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About 7,500km of BOT highway projects at risk: Crisil

Half of projects under construction at high risk being abandoned due to weak finances, cost overruns, says Crisil

NHAI had awarded road contracts to private developers between 2009-10 and 2011-12 on a build-operate-transfer (BOT) model. Photo: MintPremium
NHAI had awarded road contracts to private developers between 2009-10 and 2011-12 on a build-operate-transfer (BOT) model. Photo: Mint

About 7,500km of road projects in the country are currently at high risk of either remaining incomplete or being abandoned because of losses, according to ratings company Crisil Ltd. Out of these, 5,100km of roads are under construction and 2,400km are operational.

The National Highways Authority of India (NHAI) had awarded these contracts to private developers between 2009-10 and 2011-12 on a build-operate-transfer (BOT) model. Developers use their own money to build BOT projects, operate them for a period and transfer them to the government.

Half of the projects under construction are at high risk of not being completed because of significant cost overruns and weak finances, Crisil said. The other half may benefit from “proactive moves by the government to facilitate right of way and other clearances", it added.

Among 80 operational highways, 26 are unable to service debt on their own because of lower-than-estimated traffic, Crisil said. These projects, accounting for 40% of the total length of operational BOT highways, have an outstanding debt of 17,100 crore. Timely support from sponsors to bridge cash-flow mismatches will be critical, the report said.

Several operational projects have been facing cash-flow mismatches, hurt in part by lower-than-estimated traffic and interest rates which rose till the end of 2014.

NHAI has till date awarded 210 BOT projects spanning about 20,000km, of which 38 projects covering about 4,600km have been terminated and only 80 projects covering more than 6,050km are currently operational.

Many large infrastructure companies are looking to sell their road assets after a change in rules made it easier for BOT developers to exit operational projects. But valuation mismatch will be the single biggest stumbling block for deals, analysts said.

“Under-construction projects require equity and cost-overrun support of around 28,500 crore over the next two years. Of this, about 16,000 crore could be stumped up from internal accrual of sponsors and sale of stake at the special purpose vehicle level. That leaves a significant shortfall of 12,500 crore," said Sudip Sural, senior director, Crisil.

In September alone, rating agency Credit Analysis and Research Ltd downgraded at least 10 highway or toll road projects due to “deterioration in the liquidity profile of its sponsor" or “ongoing delays in servicing of debt obligations". On 23 September, it had downgraded the ratings assigned to the bank facilities of GMR Group company GMR Hyderabad Vijayawada Expressways Pvt. Ltd on account of ongoing delays in servicing its debt obligations and persistent cash losses.

Ratings agency Icra Ltd had last month downgraded the ratings of two of L&T Infrastructure Development Projects Ltd (IDPL)’s projects to D, indicating that the instrument in question is in default or will default on maturity.

NHAI is targeting to award 5,000km of road projects every year for the next few years. This year, it has already awarded 1,700km of projects.

NHAI, which invites bids from developers and awards them to the lowest bidder, is the sole agency responsible for the development of national highways in India. In August, NHAI removed a clause which required companies to invest the money received from monetization of their operational assets into new NHAI projects, offering relief to these companies. It has also offered to fund projects that are stuck in advanced stages of completion.

These projects have been hurt by land acquisition issues, aggressive bidding and weak financial health of sponsors. Refinancing through capital market and partial guarantees could help operational projects raise low-cost and long-term funds, Crisil said.

These projects would require a toll revenue growth of around 40% in order to service their debt obligations, but traffic growth, which is around 8% would make it difficult for toll revenue to grow as much, Crisil said.

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Published: 06 Oct 2015, 05:23 PM IST
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