‘Revised HAM to boost investor confidence, catalyse stake sales’

Besides boosting investors’ confidence in the hybrid annuity model (HAM) for highway development, the revised model concession agreement (MCA) is likely to have a positive impact on the stake sales and Infrastructure Investment Trusts (InvITs) transactions, according to CARE Ratings.

This is because, under the revised MCA, the government has allowed transfer of equity stake of a developer in a HAM project after six months of the commercial operations date (COD) from two years earlier, the agency said on Wednesday.

The rating agency also said that the doubling the number of upfront payment construction support release to 10 instalments from five earlier will lead to an improvement in the working capital cycle by around 15 days for the developers. The government, however, has kept the ceiling same at 40% of the project cost.

Under HAM, the NHAI pays the developer the balance 60% of the project cost as annuity payments over the operations period along with interest thereon.

Interest shall be due and payable on the reducing balance of completion cost at an interest rate equal to the average of one-year MCLR of top five scheduled commercial banks plus 1.25%. Earlier, it was linked to the Reserve Bank of India (RBI) bank rate plus 300 basis points.

The authority shall declare the list of top five scheduled commercial banks on September 1 every calendar year based on the balance sheet size. The one-year MCLR of the top five scheduled commercial banks shall be taken at the start of every quarter.

CARE Ratings said the move is expected to improve the average debt service coverage ratio (DSCR) by 6% and project internal rate of return (IRR) by 110 basis points.