Highway developers looking for exit options from their projects have to wait. An inter-ministerial group, which met on Thursday to take a call on the issue, could not reach a consensus.
According to the current norms, the lead company of a consortium that develops and operates highway projects can sell up to 74 per cent stake in the first two years of completing the project. After two years of operating the project, the developer can exit entirely.
The move to give companies an option to entirely exit, even before the two years of operation limit, is expected to help them receive higher valuation for their completed projects, apart from bringing cash into the sector where developers are facing a liquidity crunch.
Most highway developers, including Larsen and Toubro, GMR, ITNL, IRB and Ashoka Buildcon, have options to divest stake at holding company level and at the project SPV level.
When companies divest stake at the holding company level, the valuation is usually lower because the investor has to take on the risk of completing the project. But for completed projects, companies can seek a premium as investors can see the toll revenue receivables.
The National Highways Authority of India (NHAI) board recently approved a proposal allowing companies to entirely exit from the special purpose vehicles (SPVs), instead of having to maintain 26 per cent stake till the first two years of operations are completed.
The inter-ministerial group comprised officials from the Department of Economic Affairs, Department of Expenditure, Road Transport and Highways Ministry and the Planning Commission. There were objections from the Planning Commission officials, said a source.
In fact, the exit norms were even tighter before 2009, when developers had to retain a minimum 26 per cent stake for the entire concession period. Since public-private partnership was a relatively new phenomenon, the fears were that project owners would leave the projects half way.
Subsequently, the committee headed by Planning Commission Member B. K. Chaturvedi allowed the lead companies to divest entirely from the SPVs two years after the completion of a project.