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Infrastructure: After CCEA order, NHAI payouts start; Rs 2.7 bn released to IRB, Rs 10 bn to HCC

The NHAI has started releasing payments related to CCEA’s directive for 75% payout of arbitration awards, within 10-12 days of submission.

NHAI, CCEA, SEL/SIPL, IRB, construction players, HCC
The NHAI has started releasing payments related to CCEA’s directive for 75% payout of arbitration awards, within 10-12 days of submission. (Source: PTI)

The NHAI has started releasing payments related to CCEA’s directive for 75% payout of
arbitration awards, within 10-12 days of submission. As per submission received, NHAI has
released R2.7 bn to IRB and is likely to release another R10 bn to HCC. Within our coverage universe, we expect SEL/SIPL and Ashoka Buildcon to be key beneficiaries (potential 10% upside to SoTP), though with a lag (claims in arbitration stage). We revise our target price for IRB to R270 (from R265).

IRB the first beneficiary of 75% payout by NHAI
NHAI has started releasing payments as part of the CCEA’s directive to disburse 75% of the arbitration amount deciding in favour of contractor/concessionaires IRB has recently
received R2.7 bn from NHAI. We had accounted for R1.7 bn of such value in our SoTP, implying a modest increase in our SoTP to R270 (from R265 earlier). Other companies having filed claims include HCC (R10 billion), IL&FS (R1.5 bn), and AFCONS (R1.4 bn). Total quantum of settled claims submitted to NHAI is R25 bn out of which 75% quantum or R18 bn would likely get released over the next couple of weeks. As per our interaction with NHAI, the total quantum of such awards is of the order of R60 bn.

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Large quantum in offing for construction players
Among players, HCC would be a key beneficiary with R34 bn of arbitration awards with various government agencies against

R50 bn of standalone debt. Within our coverage universe, we note other key beneficiaries in (i) SIPL (R4-5 bn of claims, potential 70% realisation), (ii) SEL
(R3 bn of claims, potential 30% realisation + 69% stake in claims of SIPL and (iii) Ashoka Buildcon (R2.1 bn of cost provisions taken related to PNG project, similar benefit on realisation of 1.5X equity invested).

Details of CCEA guidelines
As part of the initiatives approved by the cabinet, 75% of the claims decided in favour of construction companies would get paid by the related government bodies. Construction companies can avail this sum against a margin-free bank guarantee; can use this to either reduce their debt or to invest in construction projects. The quantum of such relief in the short run would be significant in making several construction companies come out of default and eventually resuscitate/ bid for construction projects.

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First published on: 27-12-2016 at 06:48 IST
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