HAM grows substantially in over 3 years, but some cracks are now surfacing on highways: Crisil

Some "cracks" have surfaced on the highways on hybrid annuity model (HAM) with smaller developers finding financial closure of projects tough, rating agency Crisil said on Monday.

Launched in early 2016, the model had expedited road construction schemes and resulted in execution of a large number of projects.

"In the past three-and-a-half years, the HAM of road construction has grown substantially, but some warts are now showing up: smaller developers are finding financial closure elusive, and over-aged projects awaiting appointed dates are facing termination risk," CRISIL said in its research report.

Crisil Research's analysis of road projects under the National Highways Authority of India (NHAI) showed that HAM has expanded its network since its launch in February 2016.

"Over fiscals 2017 to 2019, HAM projects accounted for a quarter of the executed road projects and 45-50 per cent of the projects awarded," said the report titled 'HAM paves ahead, but cracks appear too'.

The report said a deep-dive project-by-project analysis by Crisil Research shows that of the 6,670-km HAM projects awarded by the NHAI during financial years 2016 to 2019, a good 70-75 per cent have achieved financial closure, most of them by large developers with a turnover of over Rs 1,500 crore.

However, it said the smaller developers have started to face problems.

"Though the foundation has been laid, some cracks have surfaced on the HAM highway. The smaller developers, many of which have changed lanes from engineering, procurement and execution (EPC) projects to HAM for the first time, are struggling to secure funding after bidding aggressively, and banks tightening capital requirements," it said.

It said the upshot has been a deceleration in the pace of financial closures.

For fast-track highway projects, reviving the public-private partnership mode and attracting more investments in the sector, the government had approved HAM under which it provides 40 per cent of the project cost to the developer to start work while the remaining investment is made by the developer.