Govt plans to fund highways by issuing bonds with attractive returns

Gadkari said the government might raise funds by issuance of bonds and proposed an attractive rate of return of around 7.5-8 per cent

As the Union government grapples with financial challenges, it plans to raise money by issuance of bonds at attractive returns and encourage greater private participation in the road sector, Union Highway Minister Nitin Gadkari said in Parliament on Tuesday. 

“Good roads and expressways save time and fuel… people will have to pay for it; the government does not have money to make expressways toll-free. If you want good services, you have to pay for it,” Gadkari said in the Lok Sabha on Tuesday. 

To battle the financial woes, the government has also shifted focus to the BOT (Build-Operate-Transfer) projects and is working out modalities to bring new norms in this model of construction. 

The minister said the government might raise funds by issuing bonds and proposed an attractive rate of return of 7.5-8 per cent. These bonds, likely to be issued by the National Authority of India (NHAI), will help the government build the country’s road infrastructure through public money. 

The National Highways Authority of India (NHAI) has to raise 21 per cent more in 2019-20 as the government prepares a blueprint for executing Bharatmala projects in a time-bound manner. The authority has the approval to raise Rs 75,000 crore during the current year. In FY19, Rs 62,000 crore was raised through a mix of debt from banks, toll revenue and a road monetisation scheme. In FY18, the NHAI’s IEBR was Rs 50,532.41 crore. It went up to Rs 62,000 crore in FY19 and further up to Rs 75,000 crore in FY20.

The government’s budgetary support of Rs 36,691 crore has been sanctioned for the current year. According to a post-Budget ICRA report, timely monetisation of mature road assets is important to get funding to support the ambitious execution targets set for the Bharatmala programme. 

“If it fails, the shortfall has to be met through additional borrowings, increasing the debt of NHAI further,” Gadkari said. 

The minister had in January said NHAI planned to raise Rs 10,000 crore through Bharatmala taxable bonds in 2018-19, but the highways authority did not issue any bonds last year. 

NHAI has received an unsecured loan of Rs 25,000 crore from the State Bank of India for 10 years with 3 years of moratorium on repayments. This is the largest amount of loan to have been sanctioned to NHAI by any institution. This is also the largest long-term unsecured loan sanctioned by SBI at a time to any entity. SBI has extended the loan based on one month MCLR. 

NHAI has traditionally relied on borrowings through long-term bonds issued to various investors, including LIC, EPFO and other qualified investors. It had raised money through masala bond issue (rupee denominated), which came out in May, 2017, and attracted bids worth over Rs 3,000 crore. The proceeds from the rupee-denominated offshore bonds were utilised for NHAI projects.