‘Don’t allow highway developers to exit before project completion’

November 25, 2013

OUR BUREAU| NEW DELHI

IIFCL opposed to the NHAI and Road Ministry stance that the exit norms for highway developers should be relaxed.

Highway developers should not be allowed to exit from projects till the highway stretches are constructed, a senior India Infrastructure Finance Corporation Ltd (IIFCL) official said.

This stance of IIFCL’s, which has disbursed around Rs 9,300 crore for road projects, is important in the backdrop of the Highway Ministry taking a re-look at the exit clause for highway projects.

IIFCL has sanctioned (net) about Rs 18,000 crore for road projects. It is the largest loan segment for the infrastructure financier. “Do not allow a developer to exit till construction has been done,” Sanjeev Ghai, Chief General Manager, IIFCL said, speaking at a traffic technology conference.

PROPOSAL ON TABLE

The Highway Ministry is reviewing a proposal to allow developers to sell their stake and exit from projects before they are permitted to underthe terms of the contract with the National Highways Authority of India.

At present, there are different rules regarding exit of road developers from their projects, depending on the year in which they had bagged the project. If the project was bagged after 2009, the exit norms are easier. But, for projects awarded before 2009, the norms are tighter and do not allow developers to sell stake before some years of operation.

The NHAI and Road Ministry had earlier taken a stance that the exit norms for highway developers should be relaxed. But, the Cabinet approved a proposal which allowed for lender substitution, something that has not taken off.

This is because highway developers raised concerns, saying, among others, that with the forming of a new special purpose vehicle, the income tax benefits of a 10-year infrastructure project are not transferred to the new developer who acquires the project.

“Senior lenders are unwilling to substitute during construction,” said Anand Kumar Singh, CGM, NHAI.

Mukesh Kumar, Vice-President, Infra Group, SBI Capital Markets, said that stake sale should be allowed between highway developers.

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(This article was published on November 23, 2013)

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Written by ITW Editor · Filed Under MORTH, Road Transport and Highways (Ministry)

Road developers welcome move on IIFCL

October 29, 2013

MAMUNI DAS

Road developers welcomed the Finance Ministry’s move to permit India Infrastructure Finance Corporation Ltd (IIFCL) to become the sole lender even at a pre-bid stage, but said the exact impact will be known only after the finer details emerge.

“The very fact that IIFCL can become the sole lender is a good decision. One of the key points is the project developer would not have to go to multiple banks. Right now, for projects valued at Rs 3,000 crore or so, project developers have to go to 12-15 banks as there are exposure limits of Rs 200-250 crore for each firm, except if you go through State Bank of India,” K. Ramchand, IL&FS Transportation Networks Ltd, told Business Line.

“IIFCL becoming involved at a pre-bid level is good. If it gets involved with the project sponsor, such as NHAI for road projects and Port Trusts for port projects, then there will be a layer of banker’s assessment of a project, even before the project goes out for bid. This is likely to solve the current problem of gaps between bankers’ assessment of a project and NHAI’s assessment,” said an NHAI official.

“When can IIFCL become a sole lender? If it can become a sole lender, anytime after the early stage, while this is good for developers, the fear would still be that IIFCL may be stuck with relatively bad projects,” Virendra Mhaiskar, Chairman and Managing Director, IRB Infrastructure Developers, told Business Line.

K.C. Chakrabarty, RBI Deputy Governor, in a paper had said “I would rather wish that entities such as infrastructure debt funds, IIFCL, which are set up to provide take-out financing, should assume initial credit risk in such projects and then sell the same to banks.”

In the context of long gestation projects, financiers of infrastructure projects need to pay a lot of attention to the project at the nascent stage. Having assumed the risk till projects come on stream and start generating revenue, it was natural for a bank to be unwilling to trade a good credit risk to fund another greenfield project, he said in the paper.

Source-http://www.thehindubusinessline.com

Written by ITW Editor · Filed Under Uncategorized