Highway developers can get Rs 4000 cr more via easy exit option

Q: The change in rules would provide road sector infrastructure companies with opportunities in mergers and acquisitions.

Santosh TR,

2nd September 2015

Real estate News in Mumbai

infrastructure and construction

highway projects

ccea

debt assets

india rating and research agency

road & highway projects in mumbai

road sectors

exit rules

cabinet committee of economic affairs

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Replies (3)

Traffic in road projects grew in the range of 5-6% in FY15 compared with a decrease in FY14. India Rating & Research expects that the tempo to continue in FY16 also on account of increased economic activity. Toll rate increases linked to inflation, whether completely or to a limited extent, have somewhat balance the decrease in traffic numbers in FY15.

Vaibhav Bhatnagar, Bangalore

2nd September 2015

Comment

Right Vaibhav,
Some of the current projects indicate the lack of ability to hike toll rates, specially for rebate 100% linked to wholesale price inflation. Taking into consideration the existing low inflation scenario, the potential benefits of the growth in traffic numbers could be eroded.

Kajal, Delhi-NCR

2nd September 2015

The research and ratings firm estimates that out of the 86 completed road projects, equivalent to 5200 km, about Rs.4000 crore of additional residual equity can be released under this proposed divestment scheme.

Dwarkesh,

2nd September 2015

Comment

Yes, so that this could be used for investment in other projects of the developers. Prior to the current policy direction, the possible equity divestment could have been around Rs 11000 crore. India rating and Research expects that these measures to give a boost to weak sponsors in about 20 projects.

Santosh TR,

2nd September 2015

Right Santosh,
This could de-stress and release the equity, helping them to maintain their balance sheets. Hence, investors may reveal interest selectively on projects with strong y-o-y traffic and revenue growth.

Ravindra Singh,

2nd September 2015

I think this move will help comfort some tension in the road sector and attract investment into the sector. Even, Cabinet Committee of Economic Affairs highlighted that this will help in completing the sluggish infrastructure projects.

Kajal, Delhi-NCR

2nd September 2015

True Santosh,
The Cabinet Committee on Economic Affairs last week allowed road developers to fully exit their equity investment in all operational projects after 2 yrs. of completion irrespective of the year in which the project was awarded. Which in turn can be used to fund other infrastructure projects or to withdraw debt.

Dwarkesh,

2nd September 2015

Comment

Good afternoon Dwarkesh,
Earlier, the exit norms allowed road developers to fully take up their operational projects, which were awarded pre-2009, after operating them for 2 yrs. The change in rules would provide road sector infrastructure companies with opportunities in amalgamation and acquisitions.

Santosh TR,

2nd September 2015

Players in different work groups will benefit since the funds released can be used in other projects not promoted by National Highways Authority of India and power projects. Cashless developers burdened by a high debt servicing cost will also now be able to use funds to withdraw debt.

Vaibhav Bhatnagar, Bangalore

2nd September 2015