Asserting that the NHAI's payment mobilisation advances to developers will provide a fillip to the construction pace of hybrid annuity model (HAM) projects, rating agency India Rating (Ind-Ra) said nearly 60 per cent of the projects bid out till December 2016 have achieved financial closure. According to the agency, HAM was introduced to rejuvenate the road sector and lessen the equity burden on the already stressed developers. "Of the 27 HAM projects bid up to December 2016, finances have been tied up for 60 per cent.
Lenders wary of funding HAM projects have gradually acclimatised to the contract structure especially the equity light model," Ind-Ra said. However, another 16 projects awarded later are yet to achieve financial closure. It noted that though case specific impediments such as aggressive bids and stressed sponsors among others continue to delay financial closure, low equity in HAM projects will weigh on funding decisions. In case of HAM projects, construction funding accounts for 40 per cent of the total cost is released by the authority in five tranches linked to the milestones, while the balance (60 per cent) is arranged by the concessionaire. "The project is likely to have sufficient funds because equity injections, mobilisation advances, debt drawdowns and timely grants would hasten the completion subject to the full availability of the land," Ind-Ra said. According to the agency, generally, these projects are executed by the in-house EPC companies. Therefore, the low equity component in the project with EPC margins being front ended, limits the incentive for the sponsors, an issue which continues to haunt some of the stressed toll projects. "Amid lenders' cautious approach to infrastructure, a delay of about six months is usual and projects battling financial closure could be due to case-specific issues. "Simultaneously, sponsor's experience, capabilities in executing projects on a timely basis and debt service coverage ratios are crucial in taking funding decisions," it added.
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