NHAI advance payments speed up HAM projects
Noting that advance payments by the National Highways Authority of India (NHAI) to private developers in hybrid-annuity road projects will give fillip to construction, rating agency India Ratings (Ind-Ra) has said nearly 60 per cent of the projects awarded till December 2016 on the innovative model have achieved financial closure.
“Of the 27 HAM projects (hybrid annuity) auctioned 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 in its findings.
Another 16 projects awa­r­ded later are yet to achieve financial closure, it said.
Construction funding accounts for 40 per cent of the total cost in HAM projects and is released by the authority in five tranches link­ed to milestones, while the concessionaire arranges the balance 60 per cent.
The developer would ­fu­nd not more than 25 per ce­nt of the non-authority component (60 per cent), which necessitates raising debt. Therefore, the equity portion is narrowed to 15 per ce­nt of the project cost against the earlier set pattern of 20-25 per cent.
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. “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,” the agency said.