NHAI's IPO decision would need deliberation about its board structure, budgetary support

New Delhi: Road Transport Minister Nitin Gadkari interacts with PTI journalists in New Delhi on Wednesday. PTI Photo by Atul Yadav (Eds pls see Story under DEL 15,16,17,18) (PTI5_20_2015_000091B)

The ministry of road transport and highways has been tapping various sources to garner funds for its highways’ projects. While union minister, Nitin Gadkari, has complained about insufficient banking support, he plans to utilise funds from “common man” and return with “good interest”.

The minister has now gone a step further and proposed to issue shares of National Highways Authority of India (NHAI) as an initial public offer (IPO).

An IPO means primary issue of shares of a company which are available with the public to be subscribed.

At an event in Mumbai, Gadkari said that the IPO for NHAI was “in the process” but he needs “approval from the Finance Ministry”.

Also read: National Highways Authority of India mulls IPO, to seek FM nod soon: Nitin Gadkari

Industry experts and market watchers are upbeat about the announcement and are “confident” about the issue.

While the idea is still in the offing, experts believed it could be a “bold move” to have an IPO for NHAI.

“If the ministry issues an IPO for NHAI, it will be a bold move” said Suresh Subudhi, partner-director, public sector, Boston Consulting Group, a consultancy firm.

He said that such a step would change the board room structure of NHAI as it will shift from a government backed entity to a corporate firm.

Experts believe that an IPO would provide NHAI with independent investors who could control the financial position of the entity.

“The IPO would change the board room structure, will determine the financial performance and can see an improvement in the corporate governance of NHAI,” said Subudhi.

Experts believe that such measures by the government show “innovative models” of funding being adopted by NHAI.

NHAI has previously issued masala bonds, 54 EC bonds and has other long term borrowing schemes to fund its projects. Industry views these steps as NHAI’s quest to become “self-sufficient”.

They, however, cautioned that with such an aggressive fund raising, authority’s share of budgetary support could be altered.

Also read: Govt mulls raising Rs 10 lakh cr from retirees, PF beneficiaries to fund infra projects

“With IPO, we will have to see if the budget support by the government continues or not,” said an analyst, who did not wish to be named.

NHAI majorly receives budgetary support as central road fund, investments made in NHAI by the government et cetera.

Sources, however, told Moneycontrol that getting a good rating for an IPO could be difficult for NHAI. Few rating agencies, who till now have maintained ‘stable’ rating for the authority, “do not have views like market”. NHAI’s annual reports also “come with a lag of one year”, whereas, public offer would require them to make their reports public quarterly.

NHAI has received AAA ratings from various agencies on the back of its “strategic importance to the government and its strong financial risk profile”.

Market watchers and rating agencies believe that as long as NHAI continues to receive “direct and indirect government support” for implementation of various highways projects, it is anticipated to be “stable” and a “decent buy”.

“If we look at the infrastructure gap in India and also at Government’s focus towards Infrastructure Sector; bringing in IPO, should be a positive instance for NHAI,” said Pradeep Aggarwal, chairman and managing director, Signature Global Securities, a proprietary trading firm.

Aggrawal was optimistic about the subscription for NHAI in the back drop of Cochin Shipyard’s oversubscription.

“Looking back at the response to the IPO of Cochin Shipyard which was oversubscribed by more than 75 times, our view on the proposed IPO of NHAI, stands stable. However, since the company is yet to be rated by the credit agencies, final comments shall follow,” he said.

“The issues shall get good response from both Retail and HNI category however the imperative key shall be the pricing of the IPO”.

Analysts say that the current expansion projects are “intrinsically financially viable” and that such an issue should be fairly subscribed.

“Current lane expansion projects are intrinsically financially viable… the portfolio of projects are changing,” said Subudhi.

Experts believe that as long as funds are used for highway projects on BOT and TOT model, NHAI’s prospects look bright.

They, however, said that “land acquisition could be a dampener” which needs the ministry’s attention.