Aggressive bids for road projects leading to a build-up of stress in the sector

  • This coming ahead of government’s plan to revive private sector interest in the sector through award of BoT where investment risk is entirely borne by the developer, could require further calibration of policies to salvage new projects

Subhash Narayan
First Published23 May 2024
NHAI has identified 53 BoT (Toll) Projects for a length of 5200 km for bidding over next few years, starting FY25.
NHAI has identified 53 BoT (Toll) Projects for a length of 5200 km for bidding over next few years, starting FY25.(Mint)

Aggressive new entrants for highway projects have built up stress-like conditions in the sector, driving down bids with the result that several projects have failed to get financial closure, an analysis by India Ratings and Research has found.

The development comes just ahead of the government’s plan to revive private sector interest in the sector through awards of BoT (build operate transfer) projects where investment risks are entirely borne by the developer. The plan could require further calibration to salvage new projects, says the report.

According to infrastructure outlook 2025 provided by India Ratings and Research, the new developers, many of which had transitioned from EPC (engineering, procurement and construction) to HAM (hybrid annuity model) for the first time post the relaxation in the technical and financial norms, have subsequently struggled to secure funding, as banks have tightened capital requirements.

At the same time, new entrants and relaxed bidding norms have resulted in aggressive bidding for road projects with even financially weaker players getting projects on lower bid premiums. 

Aggressive bids have also come on account of fewer projects getting awarded over the last couple of years. The sponsors of some of these entries face pressure to financially close projects resulting in the National Highway Authority of India triggering project substitution to bring in new investors to salvage projects.

Also Read: Highway construction targets to be lowered in FY25 in spite of post-election growth agenda

“In the last couple of years, about 8-10 awarded highway projects faced substitution as original sponsors could not get financial closure. But most of the projects facing stress have been bid on HAM model where risks are lower for developers as payment is guaranteed over a period in the form of annuity. This should not impact bids for BoT projects as reasonable traffic projections and toll earnings would decide interest from developers,” said Rishabh Jain, associate director at India Ratings and Research.

NHAI has identified 53 BOT (Toll) projects for a length of 5200 km worth Rs. 2.1 trillion for bidding over the next few years starting FY25. As these project complete depend on risk appetite of investors and projections of toll revenues, stable conditions in the sector in a pre-requisite.

While a small component of the road sector faces stress like conditions, India Ratings and Research (Ind-Ra) has maintained a stable rating outlook for the overall infrastructure sector for FY25. It has maintained a positive rating outlook on airports.

Energy Outlook


Ind-Ra has revised the rating outlook for thermal assets to stable from positive, and wind assets to stable from negative for FY25.

Also Read: Highway construction picks up pace in late push

The stable rating outlook on the infrastructure sector factors in the likelihood of a stable operating performance for majority of the projects, long-term revenue visibility under concession agreements and power purchase agreements (PPAs), and expected improved cargo and traffic volumes, the agency said in its report.

Growth in electricity demand leading to increased utilization of thermal assets and improving traffic volumes at airports are positives. Adequate internal liquidity and timely payments from counterparties remain key monitorables. Furthermore, the impact of a potential rise in the interest rates owing to the proposed increase in provisioning norms on the cost of borrowing for infrastructure projects remains monitorable for projects with thin debt coverages, it said.

The agency maintains stable outlook for Toll Roads as these are backed by economic growth expectation and adequate coverages. It expects a moderation in toll collection growth in the range of 6%-7% in FY25 compared to double-digit growth seen in FY23 and FY24. Impact of traffic from new roads is a key monitorable, the ratings agency said.

A stable outlook has also been projected for annuity road projects based on hybrid annuity model for FY25. This is because of sustained high competition, significant chunk of projects won by a new sponsor in either under-construction or pre-appointment date stage, persisting land-related issues and lower awarding activity in FY24 and 1HFY25. All these factors could cause developers to aggressively bid for projects leading to a build-up of stress in the sector, the ratings agency said.


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