There is no demand for road investment or road project either from the lender or from the investor side. Aimed perhaps as a push to the sector, the government decided late last night to allow road companies to swap equity, to selloff their equity provided the lenders agree. But KK Mohanty, MD, Gammon Infrastructure says these are just procedural simplifications. Before this an environment needs to be created where the road projects remain or become economically viable, he says.
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He says if issues related to land acquisitions, collecting toll (what is happening in Maharashtra) and other such administrative hurdles continue to result in project delays, the present negative sentiment about growth projects will become a long term problem.
He does not think anybody is optimistic about the situation - there are no buyers. It can only help in internal reorganization within the group or companies, he adds. As far as banks are concerned, he feels they are already saddled with bad projects, so they may utilize this opportunity to improve their position with a better promoter, or a better structure. But he does not see a real transaction happening at this point in time.
Below is the verbatim transcript of KK Mohanty's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18
Latha: You will see a lot of equity changing hands given the current condition of that industry?
A: These are procedural simplifications which will help the whole situation. But presently today the sentiment is too bad and there is no demand for road investment or road project neither from the lender side nor from the investor side. However, before making these procedural simplifications we need to create an atmosphere or the setup where road projects remain economically viable.
If you allow me to say so, yes, the industry might have made some mistakes and bided for the wrong projects. Those projects may not be protected, but the projects which are suffering for administrative or decision process, for example land acquisitions, delayed projects, after completion – today what is happening in Maharashtra for operating the project, collecting the toll. If those issues are not resolved, I am afraid these negative sentiments about growth projects will be a long-term affair.
Latha: Do you see some people taking advantage of this procedural ease and selling off their more mature projects, after all a lot of you have fairly well yielding mature road build, operate and transfer (BOT) projects.
A: Nobody can be optimistic about the situation. There are no buyers and just for internal reorganisation these procedural simplifications can be utilised and a consolidation might happen internally within the group or within the company.
Sonia: Do you think banks will be comfortable in extending credit to some of these highway developers because of this?
A: The lenders are stock up with negative or bad projects; they will utilise these procedures to improve their position with a better promoter or a better structure, but real transaction to happen at these sentiments and this economic situation and negative perception about road is really still too far.
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