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The suspension of tolling on all national highways in the country since 9 November 2016 is unlikely to impair the debt servicing of 70% of the operational toll projects in India Ratings and Research's (Ind-Ra's) portfolio. The anticipated shortfall for all these projects in interest servicing is likely to be INR854m, against which their cash debt service reserve account (DSRA) balance is INR3.88bn along with cash balance of INR884mn, which will provide a sufficient buffer.
Timely servicing of debt will be ensured by the surplus cash balances that some of these projects have. In certain cases where the sponsor has been supporting regular debt service, the agency assumes that such support will continue even for the period for which the road is not tolled. The management and the sponsors have also confirmed for majority of the projects, the support will continue. However, if the embargo on tolling continues beyond 2 December 2016, some projects' debt serviceability can be impaired.
Ind-Ra believes that as per the provisions of the concession agreement, the non-collection of toll which is a directive of the Ministry of Road Transport and Highways could be construed as a Force Majeure event. Ind-Ra believes that on account of suspension of tolling, the concession period could be extended for a period equal to the length of the period for which toll could not be collected. Further, according to the concession agreement, Force Majeure costs shall include interest on debt, operations and maintenance costs and all other costs directly attributable to the Force Majeure event but shall not include any debt repayments payable by the SPV. The details of quantum and timelines for the possible reimbursement from National Highways Authority of India (NHAI, 'IND AAA'/Stable) are awaited.
Ind-Ra has analysed the toll road projects under its coverage and the agency believes that majority of the projects will be able to service their debt timely, thanks to the sponsor's implicit commitments. In some cases the DSRA is unlikely to even be tapped and support from the sponsor / surplus cash balance are the most likely options. While some of the projects' debt service is already depending on sponsors' support, Ind-Ra will monitor the events and take necessary action in the event the sponsors fail to infuse funds to maintain the timely debt serviceability of the projects.
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