Banks flag Centre's plan to re-bid stalled highway projects

Every infrastructure company had at least one-two projects which were not progressing well

The Centre’s plans to re-bid stalled highway projects may hit a roadblock as banks are reluctant to finance these contracts again, fearing non-performing assets (NPAs) on their books.

According to a source privy to the development, the Ministry of Road Transport and Highways and National Highways Authority of India (NHAI) are facing hurdles in arranging debt for at least half of the 10 “chronic” highway contracts.

More than Rs 8,600 crore worth of national highway projects turned “chronic” primarily due to issues relating to land acquisition, which impaired construction work. Some experts said these projects were severely impacted by environment and forest clearances, local issues and also due to aggressive bidding by overzealous companies.

“Banks are scared because of their NPA position, as they will have to revisit their books for financing these projects,” an official told Business Standard, refusing to name these projects.

The developers were extremely aggressive while bidding for these projects and later faced difficulties in arranging equity as their balance sheets were leveraged. Also the traffic projections for the highway contracts made by the companies were ambitious as the actual traffic on those projects was low, according to an infrastructure consultant, who did not wish to be named.

However, the traffic has rebounded in the past three-four quarters but now none of the developers are ready to put their equity on the table, the consultant said. 

Every infrastructure company in the sector had at least one-two projects which were not progressing well. From the banks’ point of view, the stalled projects were sub-standard assets, he added.

These 10 projects, totalling a length of 787 km, belong to a host of key construction players such as L&T, Gammon and Era Infra. These road contracts are in the states of Andhra Pradesh, Haryana, Karnataka, Odisha, Rajasthan, Tamil Nadu, Uttarakhand and West Bengal.

While, some contracts were re-tendered by the government and NHAI, global investors such as Macquarie, Brookfield and Cube Highways picked up equity in 10 highway projects worth Rs 4,150 crore from which private promoters have exited.

These investments came to the sector after the Cabinet in May 2015 approved an exit policy that permitted concessionaires to divest 100 per cent equity two years after completion of construction.

The global players were coming to the road sector because global indicators were not good; with the US Federal Reserve raising interest rates, international buyers may not find the Indian infrastructure market attractive any more, a government official said.

His claim can be validated with the movement of foreign institutional investment in the infrastructure space in the past one year. Jaypee Infratech, Gammon Infrastructure, Ashoka Buildcon and Era Infra Engineering — the companies which were awarded the most number of highway contracts in 2015-16 and 2016-17 — have all seen a pullback in foreign institutional investor activity over the past year.