Government to miss roads target amid financial closure issues
ET Intelligence Group: The government is likely to miss the FY17 target of awarding road projects by a wide margin. Of its target of 25,000 kilometres (kms) length of roads projects, which includes projects from National Highway Authority of India (NHAI) and Ministry of Road Transport and Highways (MoRTH), the government has awarded 6,300 kms or a little over 25%.
NHAI has awarded 3,100 kms or 31% of its target of 15,000 kms length of roads, while MoRTH has awarded 32% of its total target length of 10,000 kms for FY17.
The slowdown is on account of the financial closure of fewer than anticipated hybrid annuity model projects. In this category, the government funds 40% of project costs while the remaining is borne by the contracting company which can be funded through a combination of debt and equity.
According to NHAI, over one-third of hybrid projects have not yet achieved financial closure. In FY17, the government awarded 36 hybrid annuity projects. Of these, only 13 secured financial closure while three projects have been terminated.
The lower proportion of financial closures can be attributed to two key reasons. First, the projects awarded by NHAI did not get minimum 80% clearances related to land and forest.
Second, banks are averse to lending for these projects as most players who aggressively bid for these projects do not have superior execution record.
Given these factors, companies which have superior execution skills will be able to attract high investors' interest. These include KNR Constructions, PNC Infratech, Sadbhav Engineering and Ashoka Buildcon. These companies are relatively placed well in terms of better balance sheet, robust order book and geographically well-diversified roads projects.
NHAI has awarded 3,100 kms or 31% of its target of 15,000 kms length of roads, while MoRTH has awarded 32% of its total target length of 10,000 kms for FY17.
The slowdown is on account of the financial closure of fewer than anticipated hybrid annuity model projects. In this category, the government funds 40% of project costs while the remaining is borne by the contracting company which can be funded through a combination of debt and equity.
According to NHAI, over one-third of hybrid projects have not yet achieved financial closure. In FY17, the government awarded 36 hybrid annuity projects. Of these, only 13 secured financial closure while three projects have been terminated.
The lower proportion of financial closures can be attributed to two key reasons. First, the projects awarded by NHAI did not get minimum 80% clearances related to land and forest.
Second, banks are averse to lending for these projects as most players who aggressively bid for these projects do not have superior execution record.
Given these factors, companies which have superior execution skills will be able to attract high investors' interest. These include KNR Constructions, PNC Infratech, Sadbhav Engineering and Ashoka Buildcon. These companies are relatively placed well in terms of better balance sheet, robust order book and geographically well-diversified roads projects.
