A plan to trim NHAI's debt mountain is cooking

The move would allow NHAI to deploy more capital for strengthening the highway network. (Photo:Mint) (MINT_PRINT)
The move would allow NHAI to deploy more capital for strengthening the highway network. (Photo:Mint) (MINT_PRINT)

Summary

  • Move to trim interest payments, free NHAI to expand network

New Delhi: After suspending fresh borrowings by the National Highways Authority of India (NHAI) for two years, the Centre is now looking to prepay some of its 3.4 trillion debt, two people aware of the plan said.

The Centre may soon begin talks with NHAI’s long-term bond holders for the prepayment, the people cited above said on condition of anonymity. The move would allow NHAI to deploy more capital for strengthening the highway network, and bring down interest payments, which are taking up a big chunk of the government’s annual budget allocations.

“Prepayment of NHAI bonds is among the options being considered for reducing highway developer’s debt," the first of the two persons cited above said. “However, this will depend on investors’ willingness to forgo high interest-bearing bonds. An earlier attempt to retire bonds prematurely, had found limited interest among investors."

NHAI raised funds through fixed coupon rate bonds with tenures of five, 10, 15, 20, 25 and 30 years, respectively. Several of these bond issues, the last of which came in FY22, are maturing between 2025 and 2030. The plan is to retire these bonds first before looking at giving early exit to long-term bond holders having payers with maturity extending up to 2040, the second person mentioned above said.

Spokespersons of the finance and road ministries, and the National Highways Authority of India (NHAI) didn’t respond to emailed queries.

“The repayment of existing debt before its original maturity will obviously increase the demand for long-tenor AAA instruments and, thereby, the yield for long tenor will fall depending upon the percentage of debt getting repaid in the same fiscal year," said Venkatakrishnan Srinivasan, managing partner at Rockford Fincap Llp, a financial advisory firm. “The long-term investors may find it difficult to balance their investments if the government decides to repay the large amount in a single year."

“Part of the money required for this prepayment may be raised through InvIT and NHAI may also raise additional revenue through asset monetisation like BOT toll and annuity model, and HAM projects," Srinivasan added.

InvITs are investment vehicles that pool money from investors and invest it in income-generating infrastructure assets, such as roads, bridges, power plants, and airports.

A hybrid annuity model HAM takes a balanced financial risk sharing approach without allocating demand risk to the private sector. It consists of contractual safeguards that emphasize high project readiness while also providing incentives for early completion. This helps in attracting private finance in procuring national highways and state road projects.

Since FY23, the government has suspended large borrowings made by the agency, while meeting the entire capital needs of the highway developer through budgetary measures.

The Union budget for FY25 raised NHAI’s allocation for building roads, highways and bridges to a new record of 1.68 trillion, marginally higher than 1.67 trillion (revised estimates) provided in FY24, and the 1.41 trillion provided in FY23. In all these years, NHAI has not been allowed to make fresh borrowings.

NHAI is estimated to be paying over 30,000 crore towards debt servicing in FY24. This will peak to over 62,000 crore in FY28, when its earnings of 69,000 crore would give it a surplus.

“The government aims to reduce NHAI’s debt by 1 trillion by FY25. Even if this (no borrowings and budgetary allocation) continues for the next few years, NHAI would become a completely debt-free company only by FY50," said the first person quoted earlier.

Since FY15, the highway developer’s debt has increased 14 times from 24,188 crore to 3.48 trillion (as of September 2023). NHAI borrowed close to 65,000 crore and 76,000 crore in FY21 and FY22, respectively. Experts said if the same level of borrowings had continued in FY23 and FY24, its total debt would have crossed 4 trillion.

While NHAI has stopped fresh borrowings, it continues to do project-based financing of highways under the SPV (special purpose vehicle) route. Under this route, it aims to raise 60,000 crore in FY24 by securitizing future toll revenue. This debt will be on the books of the SPV and not the NHAI. But even this financing mode is proposed to be stopped after FY25.

While overall debt levels of NHAI have not fallen significantly in FY24 despite no borrowings, the authority targets to bring down its debt sharply in coming years by prepaying old debt and swapping a portion of high-cost debt with lower interest-bearing loans.

 

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