 "Hybrid annuity road projects gain pace")
“For hybrid annuity projects, there were some issues from the lenders’ side on how to treat the 40 per cent payment that NHAI makes during the construction period, with some companies suggesting that 40 per cent should be treated as a part of equity and the balance of the project cost could be funded through debt. After its discussions with NHAI, lenders have now decided to treat the remaining 60 per cent as the cost to be funded, through debt and promoters’ equity generally in a ratio of 3:1,” said Shubham Jain, vice-president, Icra.
Sadbhav Infrastructure Projects and MEP Infrastructure Developers are two such companies that have achieved financial closure for some of its HAM projects. Of the six HAM projects awarded to MEP, Mhaiskar said the company had achieved financial closure for two projects. The company looks to financially close the remaining four projects by January next year. The combined value of the four projects with NHAI stands at Rs 2,735.53 crore. Data on projects awarded by the ministry are not publicly available.
PNC Infratech, MEP Infrastructure Developers, Ashoka Concessions and GR Infra Projects are some of the other companies that have won HAM projects.
Vasistha C Patel, managing director of Sadbhav Infrastructure, said the company achieved financial closure for two of its projects and was in the process of financially closing the remaining projects. The company has so far won five HAM projects for a combined project cost of Rs 4,330.95 crore.
Hybrid annuity model is where payments are made in a fixed amount for a considerable period and then in a variable amount in the remaining period.
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In NHAI’s context, the highway authority will award 40 per cent of the project cost at the start of the construction period and the remaining of the project cost is to be funded by the private road developer.
The model was introduced to address the lack of adequate private funding for infrastructure projects in the country. The HAM model allows for a division of the funding responsibility between the private developer and NHAI during the construction period unlike the build-operate-transfer model where the entire financing responsibility during the construction period lied with the developer.
Jain from ICRA adds a word of caution over the financial ability of road developers to fund these projects. “Concern over the financial ability of smaller companies for bringing in the equity component in such projects remains,” Jain said.
The combined equity component for the 24 projects NHAI has awarded so far would be Rs 3,268.67 crore and banks will have to fund the remaining Rs 9,806.02 crore. The total combined project cost, including the 40 per cent payout from NHAI, stands at Rs 21,791.17 crore. The equity and debt component numbers have been arrived at considering the 3.1 ratio for funding for the 60 per cent of the remaining cost of the project.
According to the model concession agreement for HAM projects, a financial closure has to be achieved within 150 days from the signing of the project’s agreement. If a developer fails to financially close the project within the five months, an extension of another three months can be given subject to payment of damage charges. NHAI awarded some of its early HAM projects during January-March 2016 and the signing of these agreements might have happened later giving more time to developers to meet the stipulated time periods.
An email query sent to NHAI seeking the total number of projects where financial closure has been achieved remained unanswered.