Ind-Ra assigns 'IND AAA' rating to NHAI's tax-free bonds

Says govt provides substantial support to NHAI through fuel cess, grants and additional budgetary support

India Ratings and Research (Ind-Ra) has assigned NHAI's proposed Rs 24,000 crore tax-free bonds a long-term 'IND AAA' rating with stable outlook on the back of statutory status and financial as well as other linkages from the government.

"National Highways Authority of India's tax exemption status and the privileges of raising funds through capital gains bonds and tax-free bonds reiterate its importance for the central government... NHAI's ratings factor in its significant financial, operational and managerial linkages with GoI, besides its statutory status," Ind-Ra said.

It said government provides substantial support to NHAI through fuel cess, grants and additional budgetary support.

"Fuel cess remains the major source of the authority's finances. It grew at a CAGR of 47.7 per cent over FY12-FY16 (budget estimates) to INR 294.2 bn. Also, NHAI is one of the only two institutions allowed by GoI to raise finances at competitive rates through bond issuances under Section 54EC of the Income Tax Act," it said.

On operational performance, the report said its achievements in terms of projects completed declined to 75.05 per cent in FY15 from 88.9 per cent in FY13.

"Achievement in terms of contracts awarded improved to 54.16 per cent in FY15 from 14.9 per cent in FY13. Ind-Ra expects NHAI's completion efficiency and award efficiency to improve in FY16 as by end-July it had already awarded 29.28 per cent of its annual target and completed 30.85 per cent of its target for the fiscal year," it said.

The report said the government, in its stride to accelerate construction, has shifted its focus to engineering procurement and construction (EPC) mode.

"In FY15, NHAI awarded 34 projects with a total length of 3,068 km. Of these, only five projects have been taken up under build-operate-transfer (toll) with 734 km of length and the remaining have been taken up on EPC," it added.

NHAI is also looking out for a unique model for bringing in private participation for the operation and maintenance of EPC projects.

"The model would be on public private partnership lines. Despite increased focus on EPC mode, the first four months of FY16 saw BOT (toll) picking up with 79.3 per cent of the land awarded during FY16 (up till end July) being taken up on this mode," it said.

The report outlined delays in land acquisition as one of the key reasons behind slackness in the projects.

"NHAI, along with the respective state governments, is taking measures such as setting up high powered committees with chief secretary as the nodal officer for projects, signing state support agreement, setting up special land acquisition units in some states and providing additional manpower and physical resources," it said.

NHAI, an autonomous body of GoI, was constituted by an act of Parliament - NHAI Act, 1988 - to develop, maintain and manage the national highways entrusted to it.