Developers and lenders to languishing road projects may hesitate to accept a one-time funding by the National Highways Authority of India to revive and complete such projects, according to India Ratings and Research (Ind-Ra).
This is because the proposal comes with the clause of first charge by NHAI on the toll/annuity receivables of these projects (structural subordination) over the senior lenders’ debt service.
The Cabinet Committee on Economic Affairs recently gave approval for a one-time financial assistance by the Authority to revive and complete languishing national highway projects.
Lenders already with high exposure to such projects may be unwilling to commit more resources without the help from external resources, the credit rating agency said.
However, they may find it difficult to accept the NHAI’s offer of one-time fund infusion as it comes with a structural subordination, wherein the toll/annuity receivables of the project would be ensured for NHAI through execution of the tripartite agreements between the senior lender, concessionaire and the NHAI, it explained.
Positive for 50 projects The one-time NHAI financial assistance will, however, be positive for around 50 projects, with total project cost of ₹45,000 crore, the credit rating agency said.
Empirical evidence suggests that even in case of infrastructure debt funds, under the non-banking financial company mode, existing lenders were reluctant to agree to the structural subordination on the termination of payments.
“Funding shortfall may not be the only reason for languishing projects, but also delays in getting the appropriate approvals and clearances from various government agencies.
Cost overruns “While this has resulted in project deferrals and cost overruns, the same has further increased the stressed loans in the banking system. Hence one-time funding may not help all stranded projects, but only those that needed financing,” the credit rating agency said.
Bank credit to the infrastructure sector grew at a compound annual growth rate of 39.5 per cent in the last 14 years. Outstanding bank credit to the infrastructure sector stood at ₹10.07 lakh crore in March 2015 compared with ₹95,000 crore in March 2001, says Ind-Ra.