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Sanity returns to infrastructure projects

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Less bidders for road projects, as some find it difficult to raise funds.

As infrastructure projects started drying up for most infrastructure companies earlier this year, they started focusing on building roads for the National Highways Authority of India, the only segment where contracts have been happening. The has a target of awarding 7,300 km in the current year, of which 4,300 km (60 per cent of the target) has already been awarded. Analysts say the projects are worth Rs 41,000 crore and NHAI will easily meet its target for the full year.

In order to grow order books, several infrastructure companies started bidding aggressively for most highway projects at the start of the year.

The difference between the lowest bidder (winner of the project) and the second lowest bidder ranged between 24 per cent and 116 per cent in the initial months of the financial year. The last two weeks show that aggressive bids have is now moderating. Analysts say in the current environment, financiers will be cautious about funding if the viability of the project is in doubt.

According to Sneha Rungta, construction analyst at Sharekhan, companies like Ashoka Buildcon, IVRCL Asset & Holdings and are looking for funding at the special purpose vehicle level or at the build, operate, transfer (BOT) holding level, but have not been successful. Only and HCC have so far been successful in raising funds at the holding level.

So far, companies have been willing to pay a premium to win bids, saving the NHAI from issuing grants (viability gap funding given for certain projects).This year, NHAI has not had to give too many grants as companies are willing to pay a premium to win projects. At the year’s start, typically 20 or more bidders would bid for a project and the winner would have bid substantially higher than the others.

This is changing and sanity is finally returning to construction companies as banks are not readily funding these projects anymore. Over the last two weeks, NHAI has awarded nine projects, where the number of bidders was relatively less as compared to the last two-three quarters, say analysts. These nine projects are spread across 1,064 km and are worth Rs 10,627 crore. The market is buzzing with news of some companies putting up assets for sale as they not able to raise either debt or equity. Analysts say the government is planning to meet banks and financial institutions on funding issues for such aggressive bids. They say IRB Infrastructure Developers and IL&FS Transport Network are playing it relatively safe, compared to many others in the space.

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