In a trend-setting move, which will allow infrastructure projects to tap the equity markets, the Department of Company Affairs has allowed the Noida Toll Bridge Company (NBTCL) to pursue a new method of booking depreciation under the Companies Act.
This will allow NTBCL to generate disposable income in its second year of operations and put it in a position to pay dividends in the third year.
"This is one way of attracting equity investment into road projects," said Shazaad Dalal, chief executive office, Asset Management Strategic Business Unit, IL&FS.
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Based on this approval, NTBCL has already decided to tap the equity markets with an Rs 30 crore issue of shares at par to part-finance the project cost of Rs 212 crore.
Unlike the straight-line method of depreciation, NTBCL will follow the sinking fund method of depreciation. Under this, the firm would create an up front depreciation reserve of Rs 10 crore.
This will be invested in a long-term deep discount bond with a tenor of 30 years. The interest amount accrued on the bonds each year would be off-set by a matching charge of depreciation, thus ensuring that the project assets are fully depreciated by the end of the 30-year concession period for this build-operate-transfer (BOT) project.
This sinking fund method permits book depreciation to be charged on a back-ended basis. This is because, the release adds, toll road projects typically generate a back ended profile of revenues over the life of the concession. Aggregate toll receipts increase with the growth in traffic and toll rates.
"The basis of depreciation to be followed by NTBCL thus aligns the depreciation charge more closely with revenues than would have been the case if the straight line method of depreciation had been followed," the releases adds.
IL&FS officials expect this depreciation policy to be followed by many other infrastructure projects where revenues are based on tolls and are expected to be back-ended during the life of the concession. The IL&FS-promoted road project to four lane highways between in Gujarat is also likely to follow this route.
Apart from the public issue, NTBCL - a special purpose vehicle - has also been able to get equity contributions from Unit Trust of India (Rs 15 crore), IFCI (Rs 5 crore), LIC and GIC (Rs 15 crore each), Noida Development Authority (Rs 10 crore) UPSIDC (Rs 10 crore), IL&FS Rs 10 crore.
The total project cost, including pre-operative expenses, interest during construction, evaluation fees and the construction costs of the bridge and inter-related interchange roads including a fly over amounts to Rs 400 crore.