The first batch of highway
monetisation projects might find it difficult to raise funds, as they face refinancing risk due to their longer-term contract, India Ratings and Research said in its report. The rating agency is of the view that the bidders for toll-operate-transfer (TOT) projects might find it difficult to tie-up debt, as the debt tenure in India is typically 10-15 years. Also, such projects pose a huge refinancing risk, as the initial concession period is 30 years. Furthermore, with such long concession period, the initial estimated concession value (IECV) is bulky, requiring large debt and thus large interest payments, which would be a burden on the bidder during initial years until the project achieves significant ramp up in revenues. The ratings agency said that the reduction in the concession period by five to seven years would bring down IECV, thus lowering the quantum of interest payments during initial years.
A reduction in concession period would also help the concessionaire to mitigate refinancing risk to a certain extent.