Cabinet relaxes exit norms for private infra players

To unlock capital stuck in the infrastructure sector, the Union government on Wednesday gave its nod to full equity divestment after two years of completion of construction of all build-operate-transfer (BOT) projects.

The divestment will now be allowed irrespective of the year the project was awarded.

This approval will allow concessionaires or promoters to use the proceeds from the sale of divested equity in any other highway or power sector projects. The proceeds can also be utilised in incomplete National Highways Authority of India (NHAI) projects. They can also retire their debt to financial institutions in any other infrastructure projects.

This is expected to result in the completion of languishing infrastructure projects.

The main object of the approval is to expedite the award and implementation of highway projects by making additional funds available for investment.

Experts, however, were not wholly convinced that the move would meet all its desired targets.

Kameshwar Rao, partner, PricewaterhouseCoopers, said, "This is one of the steps that may revive projects and improve cash flows of the concessionaries to some extent. But there are other bigger issues regarding the viability of the projects, such as delay in cash flows and cost overrun, which need to be addressed."

The Cabinet Committee on Economic Affairs (CCEA) amended its May 13 decision on exit. CCEA had allowed all BOT (toll) and BOT (annuity) projects awarded till September 30, 2009, to divest equity but they had to invest it in their incomplete NHAI projects.

The National Highways Builders' Federation (NHBF), subsequent to the policy circular issued by NHAI, made a representation claiming all developers did not have incomplete highway projects and were thus denied this facility.

Most developers in the infrastructure sector have highly leveraged balance sheets at their holding companies' level, as they have been simultaneously supporting various infrastructure special purpose vehicles (SPVs) that are under severe stress.

These developers can be allowed to utilise funds generated to reduce their existing corporate debt or for investment in any new infrastructure project that need not only be highways, as most developers have multiple verticals in the infrastructure sector.