Financial institutions (FIs), which have reviewed the draft concession agreement of projects for conversion of highways into four lanes, have suggested diluting the termination guarantee clause.
FIs have suggested that the termination guarantee payments in the case of force majeure be diluted to 100 per cent of the equity. The draft document had put compensation at 175 per cent of the equity in the event of a political force majeure and 125 per cent of the equity in the event of a non-political force majeure.
This suggestion is different from the finance ministry's view, which holds compensation should be linked to the market value of the project. This will imply the valuation method adopted would depend on cash flows.
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Sources said FIs have also sought a change in the definition of the debt-due clause in the draft document. FIs have said agencies like the IDFC provide support in the form of subordinated debt and guarantees, and have suggested inclusion of such debt as part of the project debt liabilities.
The FIs have also objected to the clause in the draft document that requires promoters to increase the number of lanes to six within seven years of being awarded the project or after traffic volumes rise to 65,000 cars.
If operators fail to increase the number of lanes, the concession will automatically be terminated. FIs have said this would mean an escalation in project credit risks, since the debtor will have to incur capital expenditure even before the debts have been repaid.
Consultants appointed by the National Highways Authority of India had recommended divestment by the original promoter. Original promoters are expected to have a minimum of 33 per cent equity during the operation and maintenance phase of the project. The consultants felt this should be brought down to about 10 per cent for OEM contractors and the promoters should be allowed to reinvest capital gains in other highway projects.
The FIs, however, do not agree with this view. Industrial Finance Corporation of India has said divestment below 51 per cent during the loan repayment period in infrastructure projects should not be allowed.