NHAI concession may help Reliance Infra, others disentangle Rs 4,500-cr debt

Jun 27 2014, 11:42 IST
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Developers have to bid the premium amount that they pay NHAI upfront, based on future traffic estimates. Developers have to bid the premium amount that they pay NHAI upfront, based on future traffic estimates.
SummaryDevelopers have to pay NHAI for bagging road projects on build-operate-transfer basis.
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stressed.” R-Infra’s Rs 925-crore Hosur-Krishnagiri road project has been approved on premium restructuring.

IRB’s Rs 2,226-crore Ahmedabad-Vadodara project and Rs 839-crore Tumkur-Chitradurga projects are among the beneficiaries of the scheme. According to the final approval given by NHAI for IRB’s projects, Rs 236 crore will be the revised premium that the developer will have to pay NHAI in FY15 for the Ahmedabad-Vadodara project and Rs 81 crore for the Tumkur-Chitradurga project, said Virendra Mhaiskar, the chairman of IRB. “It certainly comes as a relief for us and will be helpful in smooth operations of the projects,” he said.

Jonas Bhutta, Bank of America Merill Lynch (BoAML) research analyst, in a report in May said, “Premium rescheduling would lead to cash profits versus losses earlier on these IRB projects, and 100bp (basis points) arbitrage between interest cost on short-term debt (12%) and discount rate at which premium will be rescheduled (11%)”. The foreign brokerage has raised IRB’s FY15-16 earnings by 1%-6% on lower interest expenses.

Sadbhav Engineering had received an approval to defer premium for its Rs 1,213-crore Rohtak-Panipat and the Rs 480-crore Hyderabad-Yadgiri road projects. The company expects 100% deferment of premium in FY15 for both projects, which will mean it will not have to pay any premium in FY15, said a senior senior executive from Sadbhav Engineering. According to the original agreement, the company had to pay a total premium of Rs 60.1 crore for the two projects in FY15.

According to a Kotak Institutional Equities report in May, premium rescheduling will improve Sadbhav Engineering’s near-term cash flows and the potential valuation of the projects it is executing.

“The company seems well-placed to meet the increment equity requirement of Rs 380-400 crore for its underconstruction and development projects,” said Aditya Mongia, infrastructure sector analyst at Kotak Institutional Equities.

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