While the National Highways Authority of India (NHAI) will soon start disbursing funds locked up in arbitration to builders, it could take a couple of quarters before bidding for road projects picks up pace. Of the R2,500 crore worth of claims put in by developers, the first tranche of R1,800 crore is expected to be paid out to a clutch of concessionaires by NHAI shortly.
Manish Sharma, partner (infrastructure), PwC India, told FE the step is a sentiment booster and will improve the cash flows of builders.“However, for this to translate into fresh bidding activity would take a good 6-8 months,” Sharma said.
Indeed a potential R26,000 crore could be back with builders in the next few months if things go their way but much of this money could be used to pare debt. For the moment, developers are going slow on new projects — that’s clear from the many hybrid annuity projects which are yet to see financial closure.
The government had been hoping to award 25,000 km of roads in FY17 and construct 15,000 km. Till end-October, NHAI and MoRTH had between them awarded 4,443 km and constructed 3,591 km.However, companies say the release of money stuck in arbitration cases will enable them to improve their leveraging and eventually bid for more projects. Praveen Sood, CFO, HCC, a big beneficiary of the move says the firm’s leverage will come down from 2.5 times to 1.2 times. “We will be more profitable and with a leaner balance sheet should be able to raise fresh money and bid for more roads,” Sood said.
Mukund Sapre, managing director, IL&FS Engineering and Construction, said the money would bring in much-needed liquidity for the company. “Being an EPC player, our working capital requirements are high and the payments will ease cash flows,” Sapre said.
Apart from HCC, several other concessionaires stand to gain. The arbitration tribunal is yet to decide on the cases of Gammon India, Gammon Infrastructure, IVRCL and Ramky Infrastructure.
According to Bloomberg, the combined total debt of these five players stood at about Rs 35,400 crore at the end of March 31, 2016. Other companies who have filed claims include IL&FS Engineering and Construction for over Rs 150 crore and AFCONS for Rs 140 crore.
In August, the Cabinet approved releasing of 75% of the amounts locked up in litigation against margin-free guarantee for cases where awards have been given but have been contested. It was also decided that all arbitration cases will be resolved within a year.
The government’s hybrid annuity scheme, however, has not got off to a great start. Alok Deora, analyst, IIFL Wealth, observes that since the model is a new one and builders are financially stressed, it has been a challenge to achieve financial closure.
“With just 2,300-odd km awarded so far achieving the target in just three months looks difficult because acquiring 90% of the land before the project is handed over is not easy. Also companies who do receive their claims will first fix their balance sheets,” Deora said. Greg Mancz Authentic Jersey