Covid-19: NHAI's asset monetization to take a hit, InvITs face delays

The National Highways Authority of India’s ongoing asset monetization drive is likely to fall victim to the Covid-19 crisis along with the Infrastructure Investment Trust (InvITs), as the former may see lukewarm response from investors and the latter could be delayed.

“Toll-Operate-Transfer (TOT) projects are expected to take a hit. Both bundle 4 and 5, and InvITs could be delayed,” Akshay Purkayastha - Director - CRISIL Risk & Infrastructure Solutions, said in a teleconference.

NHAI invited bids for the fourth TOT contract in October 2019 and expected to raise over Rs 4,000 crore by offering a total of 7 road stretches, with a cumulative length of 400 km. The project’s base price was, however, curtailed to Rs 2,165 crore and the concession period of the bundle was reduced to 20 years.

The TOT model was introduced in 2016 to monetise publicly-funded highways, where investors could make a one-time lump-sum payment in return for toll collection for a stipulated amount of time.

On August 3, 2016, the Union Cabinet authorised the NHAI to monetise public-funded national highway projects that are operational and have been generating toll revenues for at least two years after the commercial operations date through the TOT model. About 75 operational highways completed under public funding were initially identified for potential monetisation.

The central government felt monetisation of public-funded highways would create a framework for attracting long-term institutional investment on the strength of future toll receivables.

It was felt that international investors generally hesitated from taking construction risk, but were willing to look at de-risked Brownfield road assets.

A joint venture, formed by Macquarie and Ashoka Buildcon, has emerged as the highest bidder for the Centre’s first batch of toll-operate-transfer (TOT) projects. The venture bid Rs 9680 crore for the National Highways Authority of India (NHAI) project.

The government had cancelled the second round of auction for road monetisation after companies offered low bids. It had offered eight stretches of highways under the toll-operate-transfer (TOT) model in August 2018. Bids were opened in December 2018 where Cube Highways emerged the winner by quoting Rs 4,612 crore, way below the base price of Rs 5,362 crore set by NHAI.

NHAI was earlier set to launch its first InvIT in the month of May. InvITs are trusts, similar to mutual funds listed on a stock exchange, which raise funds from investors, acquire income yielding infrastructure assets, manage such assets and distribute regular yields to investors.

In December 2019, the Union Cabinet approved the proposal of Ministry of Road Transport and Highways to authorise NHAI to set up InvITs to monetise completed national highways that have a toll collection track record of at least one year.