Centre working on five-year plan to rid NHAI of debt

New Delhi: The government is looking to either trim or scrap a large portion of the National Highway Authority of India's (NHAI's) Rs3.4 trillion-debt within five years, freeing the agency to plough its resources into strengthening highways, two people aware of the matter said.

The debt retirement plan, part of the road and highways ministry's 100-day agenda, involves paring high-interest long-term debt and bringing down the interest payment, one of the persons cited above said, requesting anonymity.

The Centre has been looking to prepay some of the NHAI's ₹3.4 trillion debt while working on reducing the debt servicing obligations of the highway developer, which is also the prime agency for surface infrastructure development in the country.

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The Centre is in talks with the NHAI’s long-term bondholders for prepayment, the second person said, also on condition of anonymity, adding the roadmaker's interest payments are taking up a big chunk of the government’s annual budget allocations.

The NHAI has raised funds through fixed coupon rate bonds with tenures of five, 10, 15, 20, 25 and 30 years. 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 an early exit to long-term bondholders with maturity extending up to 2040, the second person said.

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

The government has suspended large borrowings by the NHAI since FY23, which means having to meeting the entire capital needs of the highway developer through Central budget allocations.

During FY23, the NHAI borrowed a small amount of ₹798 crore through 54EC bonds.

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The high level of debt and a rising debt servicing obligation mean that a large portion of the budgetary allocation of the NHAI is not getting used for infrastructure creation, the first person mentioned above said.

"Among the steps taken are talking to the NHAI’s long-term bondholders for the prepayment, prepaying old debt and swapping a portion of high-cost debt with lower interest-bearing loans, and utilizing InvITs to pare mounting debt, among others. The idea is to free the NHAI from a large portion of its debt obligation and interest payment, so the authority can use funds to build infrastructure," the person added.

While overall debt levels of the NHAI have not fallen significantly in FY24 despite the ban on borrowings, the authority aims to bring down its debt sharply in the coming years by prepaying old debt and swapping a portion of high-cost debt with lower interest-bearing loans.

The plan is to target a reduction of NHAI debt to the tune of ₹50,000 crore- ₹75,000 crore each year so that the developer becomes a zero-debt entity over the next five years, the person quoted above said. However, in a scenario of no borrowings and budgetary allocations, the NHAI would become a debt free company only by FY42, this person said.

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 or 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 for procuring national highways and state road projects.

The Union budget for FY25 raised NHAI’s allocation for building roads, highways and bridges to a new record of Rs1.68 trillion, marginally higher than Rs1.67 trillion (revised estimates) provided in FY24, and the Rs1.41 trillion provided in FY23.

The NHAI is estimated to be paying over Rs30,000 crore towards debt servicing in FY24. This will peak at over Rs62,000 crore in FY28, when its earnings of Rs69,000 crore would give it a surplus.

Since FY15, the highway developer’s debt has increased 14 times from Rs24,188 crore to Rs3.48 trillion (as of September 2023).

The NHAI borrowed close to Rs65,000 crore and Rs76,000 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 Rs4 trillion.

While the NHAI has stopped fresh borrowings, it continues to do project-based financing of highways under the SPV (special purpose vehicle) route.