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The National Highways Authority of India (NHAI) could witness a debt contraction for the first time in more than a decade in FY23, if the entity's borrowings turn nil amid budgetary support, India Ratings and Research (Ind-Ra) said in a report on Tuesday.
While NHAI has been undertaking massive expansion of highways in India in recent years, it has been majorly funded through heavy market borrowings. As a result, NHAI’s debt reached ₹3,072 billion in FY21 from ₹68 billion in FY11 and further to ₹3,329 billion in 1HFY22. Although the debt has been continuously growing, the year-on-year increase in debt has been witnessing a declining trend since FY16.
After growing 82% yoy in FY16, the rate of increase in debt moderated to 23% in FY21. The increase in NHAI’s debt has coincided with the entity’s focus on execution through award of contracts primarily through fund-intensive modes such as engineering, procurement and construction and the hybrid annuity, the ratings agency said.
The yearly annuity payment of Ministry of Road Transport and Highways (MoRTH), which is largely representative of NHAI’s annuity liability, also reflects a similar trend. The annuity liability, which had averaged ₹62 billion over FY11-FY17, fell to an average of ₹46 billion over FY18-FY21. As NHAI’s award of fresh projects on the built, operate and transfer (BOT annuity) mode became less relevant post FY17, the yearly annuity liability also started declining.
Ind-Ra has estimated the yearly annuity liability on the basis of projects which were operational at FYE21. On the basis of the existing projects, the yearly annuity liability would fall to an average of ₹41 billion over FY22-FY26. The actual annuity liability however would be higher as a greater number of projects completed under the hybrid annuity model become operational.
Besides the base being already quite high, a major reason for the yoy moderation in the growth rate of debt since FY16 has been a steady corresponding rise in the budgetary allocations in the form of cess, toll plough back and asset monetisation proceeds, Ind-Ra said. The repayment obligations have also seen a steady increase, reaching a level of around ₹400 billion in FY22. Nevertheless, the budgetary allocations made every year have always been higher than the yearly repayment commitments (interest and principal), thereby precluding a situation where fresh borrowings are made to finance the repayment commitments due on past borrowings, the agency’s report said.
However, with the limited gap between the two, budgetary support has predominantly been extended for financing repayment commitments while fund requirements for fresh capex have largely been bridged using incremental borrowings.
According to Ind-Ra, the situation, however, would change in FY23 as the government has allocated ₹1,340.15 billion as budgetary support to NHAI while its borrowings as represented by internal and extra budgetary resources have been pegged at insignificant levels.
The budgetary support would be in the form of cess funds(which will flow from the Central Road and Infrastructure Fund) of ₹1,001 billion, toll plough back proceeds of ₹139.15 billion along with asset monetisation proceeds of ₹200 billion. Accordingly, with scheduled repayments and no incremental borrowings, the yoy growth in debt at NHAI could become negative for the first time in more than a decade.
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