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Banks lending only up to 35% of road project cost, says Crisil report

Banks are limiting their exposure to road projects up to 35% of project costs, compared with 70% in build-operate-transfer (BOT), or toll projects, earlier, according to a report by research and ratings agency Crisil.

NHAI, road contract, GST, bharatmata scheme, MoRTH, NHIDCL
In earlier projects, bid out under the build-operate-transfer (BOT) mode, developers suffered due to losses in toll collection for a variety of reasons, consequently unable to service the debt.

Banks are limiting their exposure to road projects up to 35% of project costs, compared with 70% in build-operate-transfer (BOT), or toll projects, earlier, according to a report by research and ratings agency Crisil.

In earlier projects, bid out under the build-operate-transfer (BOT) mode, developers suffered due to losses in toll collection for a variety of reasons, consequently unable to service the debt. With the pipeline of BOT projects having dried up now as the government has shifted focus to the recently introduced hybrid annuity model (HAM), lenders to HAM projects are comfortably placed with debt levels in the safe zone and bidding not unduly aggressive, Crisil said.

Sachin Gupta, senior director at Crisil Ratings, said banks are being extremely cautious and lending to projects backed only by experienced developers with strong balance sheets. “Additionally, banks are seeking corporate guarantees for a large number of projects to safeguard their interest.”

This has also resulted in keeping bids prudent with the bids per km at `25-30 crore as well as a limited number of bidders in a range of between 5 and ten companies vying for an HAM project. On an average, lowest bids are 15% higher than the estimated costs of the National Highways Authority of India (NHAI).

Rohan Suryavanshi, head of strategy and planning at Dilip Buildcon, said a limited number of established road developers having the wherewithal to bid has helped reduce the competition for HAM projects. “Moreover, banks are also under severe stress and this further narrows down the kinds of companies that can qualify and secure funding for road projects.”

Another factor responsible for the bidding prudence is that the government’s road development agenda under the Bharatmala Pariyojana is very large, with a high visibility of projects valued at over Rs 5 lakh crore to be implemented till 2022. Crisil said this has eliminated the desperation to grab projects.

In HAM projects, the NHAI contributes 40% of costs, and the gap in funding is expected to be closed by the developer through a mix of debt and equity that is recoverable as semi-annual annuity payments. By introducing HAM, the government has not only significantly reduced the financial burden on the developer, but also taken away the traffic risk by taking over toll collection duties.

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First published on: 08-06-2018 at 05:13 IST
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