As more than 56 large road projects are stalled for want of financial closure, Union transport minister Nitin Gadkari today asked bankers to find ways to finance these hybrid annuity model (HAM) projects worth thousands of crores.
The National Highway Authority of India (NHAI) has awarded 104 HAM projects including some during the previous government's term, but as many as 56 of them are stuck as developers are unable to secure financial closure, Gadkari said after a closed-door meeting with bankers, LIC, an RBI deputy governor and NHAI brass.
Bankers who attended the meeting include SBI chairman Rajnish Kumar, LIC chairman VK Sharma, Bank of Baroda managing director BS Jayakumar, Union Bank managing director Rajkiran Rai and private sector lenders Uday Kotak and Ramesh Sobti of IndusInd Bank.
"There are 104 HAM projects worth Rs 1.25-1.5 trillion. Of these, 56 are yet to secure financial closure. We want banks to finance them and at today's meeting we've asked banks about their issues in funding these projects," Gadkari told reporters after the meeting.
"I have assured the banks that all their concerns will be resolved," he added.
Compared to the BoT (build- operate-and-transfer) model, HAM projects are better de-risked and thus offer higher return.
Gadkari said the problems can be divided into two - projects awarded during the previous government and those awarded by the present government - and claimed that "there is no problem in those projects which were awarded after we came to power". But he was quick to add that he has also resolved many projects awarded before May 2014.
Claiming that in the last three months the road sector has contributed nearly 12 per cent to the overall growth, Gadkari said, "He wants the contribution of the road sector to overall economic growth to grow further."
Explaining why banks should fund these road projects, he said banks are also stakeholders in these projects and given the poor credit pick-up, it makes sense for them to lend to these HAM projects as they offer higher returns.
"We can give banks secured business of around Rs 5-7 trillion. If we wanted, the NHAI could have raised money from the markets, but we want banks to get business," he said.
"Government, NHAI and banks are all together and we want all the stakeholders to study the issues and move forward," he said, adding he is confident there'll be progress in the road sector after "good discussion we had today".
Gadkari said when he assumed charge, there were 403 stalled projects worth Rs 3.85 trillion. "But since then I have already resolved 80-90 per cent of them. Still there are some problems with some of the projects awarded before May 2014," he added.
Promising the troubled developers that he is ready to help them, he said, "We will arrange common meetings of all the stakeholders. The roads secretary and NHAI officials will try to find a way out."
Talking to reporters after the meeting, SBI's Kumar said they discussed mainly the stalled HAM projects. "We've given our suggestions to the NHAI to make the HAM model workable. We've assured the minister that if the NHAI implements our suggestions, there is a good possibility that these projects will achieve financial closure."
Admitting that HAM is a highly de-risked model compared to BoT, Kumar said even though a better model, banks have made more suggestion to ensure that funding does not turn bad later on in HAM projects.
One of the key suggestions from banks is non-funding during the construction stage as the only assurance of payback from the HAM projects is the annuity from the NHAI.
"Once NHAI incorporates our suggestions, I don't see any problems in achieving financial closure. At least for SBI, I can say that we are ready to finance some of the projects," Kumar said.
Another banker who did not want to be named said, "We discussed the issues regarding initial payments and haircuts, among others in these projects and the government agreed and asked us to make a case, and they will try to resolve them."
He also said bankers want NHAI to do some more refinement to awarding terms. "For instance, there are a few players bagging getting large chunk of projects, which means that there is some overleveraging building up. Can this be restricted? It should be evenly spread," said the banker.
Another banker suggested once the project is completed, it can be bundled into some bond which can be offloaded into the market.