India Ratings assigns AAA rating to NHAI's FY18 borrowing plan

Strong federal control and operational performance support the ratings

With government pushing infrastructure development by way of developing world class roads, National Highways Authority of India (NHAI) has geared up to borrow Rs 59,000 crore through a string of instruments including bonds during the current financial year (2017-18).

The authority has been given AAA rating and a stable outlook by India Ratings and Research. Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

NHAI, being the sole agency responsible for the development of national highways in India, is strategically important to the government. Its fundamental purpose is to improve the national road transit infrastructure, better serve the national economy, and improve the country's standard of living, the rating agency said in a release.

Strong federal control, with the government monitoring its annual budget (including borrowings) and operational performance, support the ratings.

The government provides substantial support to NHAI through fuel cess and grants. Fuel cess remains the major source of the authority's finances.

NHAI is also allowed by the central government to raise finances at competitive rates through bond issuances under Section 54EC of the Income Tax Act. These bonds allow investors to secure tax exemption on the capital gains earned on the sale of assets and are open for subscription throughout the year.

NHAI completed construction of 80.44% of its targeted stretches by end-January in FY'17 and achieved construction efficiency of 6.57km/day.

Although the pace of highway construction grew 20.7% on-year in FY'17, it is still lower than 7.8km per day achieved in FY'13.

The rating agency is of the view that the pace of construction will accelerate in coming years due to the sustained focus of the Ministry of Road Transport and Highways on this sector, award of most of new road projects on the engineering, procurement, and construction (EPC) or hybrid annuity mode (HAM), and the renewed interest shown by the private sector in road projects after the exit route was relaxed under the public private partnership model.

Meanwhile, Ministry of Road Transport and Highways missed its target of awarding 25,000 km and was able to achieve only about 8,000 km.