Defaulted road projects standalone; onus on govt: L&T Infra

The decision by L&T Infrastructure Development Projects Ltd (IDPL) to default on two road projects it is promoting through special purpose vehicles (SPVs) is a result of government decisions that have impacted the projects' prospects and it will not have any financial impact on the company.That is the argument laid out by the K Venkatesh, CMD of IDPL, which is a subsidiary of engineering heavyweight L&T.Venkatesh spoke with CNBC-TV18's Latha Venkatesh and Sonia Shenoy after ICRA downgraded two of the company's SPVs: a Rs 1,014 crore Gujarat road project and a Rs 475 crore Chennai project. The news of the default came to the fore after ICRA downgraded its rating on both projects to junk.In the interview, he said the Gujarat government had connected the existing tollway with an existing route, which had resulted in a steep fall in toll collections and that the company is in talks with banks and the government.In the Chennai project, the SPV is yet to receive about 25 percent of stretch of land, and as a result, the company has decided to terminate the concession agreement and believes the NHAI is responsible for making payments over above that in the project's escrow account.But in either cases, the projects have been floated on an SPV basis and lenders do not have recourse to the parent companies (IDPL or L&T), according to the IDPL chief.Below is the transcript of the interview on CNBC-TV18.Sonia: Can you confirm for us whether you have indeed defaulted on your loans? We understand that ICRA has downgraded loans on two of these special purpose vehicle (SPV) projects.A: There is no recourse to IDPL or L&T for that matter. All concession agreements are implemented on a standalone basis. So once the projects are completed then in that case the collections have to repay the debt.In these two projects in question, I will talk about each one separately. In the case of Chennai Tada Tollway, we have been with this project since 2009. Land has been coming to us in bits and pieces, we have hung on to the project but we find that almost 25 percent of the stretch, the land will not be given to us because it is not possible. Therefore it triggers the factor of termination.We have in fact in line with the concession agreement, terminated the concession agreement in June and the matter is also in the court. So consequently the remedy for termination as far as the bankers are concerned is they have to approach the concessioning authority to collect their debt. Whatever is the money that is available in the escrow account that is available for servicing. Whatever is the shortfall, after termination, the entire debt as per the concession agreement has to be paid up by the government authorities in our opinion.This has nothing to do with IDPL, it has nothing to do with L&T. It is a standalone SPV promoted by IDPL and the project is almost 55 percent complete but thereafter we cannot do very much because of the fact that 25 percent of the land is not available.Latha: What about the other project?A: In the Gujarat project, it is a similar situation but we have completed the project. However, the government of Gujarat improved a parallel road and interconnected it with the existing stretch after a particular point. So the toll plaza before the diversion is recording a revenue, which is not very far from the bid of financial closure about 80-85 percent but the toll plazas after that diversion are recording a lower conversion. We will be appealing to the government of Gujarat that let us sit down and find a solution because we have improved our road after awarding the concession to us and therefore we are involving the banks and the government of Gujarat to find a solution on this matter.Technically, the amount that is due as on the due date is about Rs 7-8 crore in the Gujarat project and about Rs 8 crore in the Chennai Tada project. This has nothing to do with the total quantum of the loan, which will get repaid over the next 10-15 years. It has nothing to do with the recourse to IDPL, it has nothing to do with the recourse to L&T.Sonia: What is the total quantum of the loan?A: The total quantum of the loan which is remaining outstanding is about Rs 350 crore in case of Chennai Tada and Rs 1,000 crore in Halol-Godhra.Latha: Is there a chance that the courts will not take your plea on the Chennai project or is it a done deal that the concession was violated by the government party by not giving you the land and therefore mandatorily NHAI has to pay, there is no legal squabble about it, is there?A: There is legal squabble to the extent that National Highway Authority of India (NHAI) is contesting the termination but the facts on the ground are that land is not available.Latha: Is that in the court is what I am asking?A: NHAI is not contesting it in the court as of now, what has been contested in the court is basically to request NHAI and the banks to allow the escrow accounts to continue. So the matter in the court is on a different ground but NHAI and us are trying to find the solution to see how to continue this. Our view is that the debt needs to be settled so that is where it is exactly.