NHAI hits slowdown; 2 key issues hurting road developers

Banks are becoming conservative in lending to private players in the roads and highways sector given the problems players in the infrastructure sector are grappling with,” said Crisil’s latest report on infrastructure.

Flooding as many road projects once again may further aggravate the funding challenges of the road projects. Image source: Pixabay

Even as the roads and highways sector is keeping an eye on the bumper round of bids to be floated in the next three months, the first half of the current financial year, however, saw just half a dozen projects being bid out by the National Highways Authority of India (NHAI). This is because several companies continue to face challenges in achieving financial closure for their earlier projects even as land acquisitions for projects bid out during the last fiscal are yet to be completed.

“Since April this year, only 400-500 km of bids were awarded by NHAI. A lot many are left to be bid out, especially in a short span as once the general election is announced, no new bids would come out,” said an analyst.

On the matter, Sudhir Hoshing, joint managing director, IRB Infrastructure Developers told DNA Money, “There are two reasons for a regular flow of bids not coming from NHAI. First is that there are lot many projects that are in the process of achieving financial closure. These projects were awarded in the months of February and March 2018. In our case, we achieved financial closure of three Hybrid Annuity Model projects within a month. Possibly, authorities are waiting to see the fate of those projects that are yet to achieve financial closure.”

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According to him, the land is still being acquired for the projects that have already been awarded.

“There are projects worth around Rs 70,000 crore that are yet to be awarded. With only three to four months left for the election model code of conduct to set in, it looks tough if NHAI will actually be able to bid out this quantum of projects. But, going by NHAI’s past, the way they had bid as many projects in Q4 FY18, they may repeat the same this time too,” said a road developer requesting anonymity. Roughly, projects involving around 5,500-6,000 km are yet to be awarded by NHAI.

The industry is expecting a slew of bids between mid-December and late January or early February, as the general election announcement during the latter part of the fourth quarter of FY19 will put the bidding cycle to a halt. However, the states of Rajasthan, Madhya Pradesh, Chattisgarh, Mizoram and Telangana, where the election is scheduled between November 12 to December 11, will not have a significant impact on the bidding activity.

Flooding as many road projects once again may further aggravate the funding challenges of the road projects at a juncture when the industry is already facing headwinds, with the latest being the liquidity crisis hitting the non-banking finance companies (NBFCs). “Because of the focus on project completion in the current year, the pace of awarding of projects is likely to slow down. In the first four months of fiscal 2019, NHAI has hardly awarded any projects...

Banks are becoming conservative in lending to private players in the roads and highways sector given the problems players in the infrastructure sector are grappling with,” said Crisil’s latest report on infrastructure.

“The problem is especially acute for mid-sized players who have recently won projects from NHAI. Banks have misgivings about the balance sheet strength of such players and their ability to absorb a financial hit in case the projects are delayed. Banks are also uncomfortable because of wide discrepancies in costs estimated by the bidder and NHAI in a number of cases,” the report said.

As per a source, lenders including banks are giving priority to road projects of the companies having either ‘A’ or above ‘A’ ratings. Those having ratings below ‘A’ are not even considered to be funded, thereby delaying the financial closure process. As a result, bids coming up in next few months may not see aggressive participation by the road developers.

Source: DNA Money

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