Road bailout may not lessen debt burden of developers: NHAI

Government's plan to allow National Highways Authority of India (NHAI) to offer rationalised compensation to road concessionaires, though is a positive in terms of cash flows, it is unlikely to improve their debt burden due to no change in repayment schedules, says a report. The extended concession period, through additional toll collection in the later years, can improve cash flows and positively impact the project life coverage ratio. But the impact in terms of improving debt servicing ability of the road project concessionaires will be limited as the extension of the concession period may not simultaneously result in a change in the repayment schedule, an India Ratings report said on Friday.

According to NHAI data, over 80 projects worth Rs 83,000 crore, 24 percent of them on annuity and rest on toll, are under implementation. The letter of award for these projects dates back over four years and most of these projects are stranded and are encountering cost overruns due to non-availability of land, for want of clearances from Environment Ministry and various other departments. In case of annuity projects, NHAI will pay a compensatory annuity based on the product of average daily annuity and the number of days delayed.

Although there could be some erosion from the original expected net present value of annuity receipts, timely compensation will ensure adequate liquidity and coverage ratios for the project, it noted. So far, cost overruns due to non-fulfillment of conditions set by NHAI are bridged by a combination of additional equity and debt.