A favourable response from investors is critical for the success of the toll-operate-transfer (TOT) model, under which the bundle of projects are being auctioned, as it would help tap funds for the authority for road projects, it highlighted.
The timely monetisation of mature road assets through the TOT route will be a critical determining factor in plugging the shortfall in budgetary allocations and fetch requisite funding to support ambitious execution targets set for the Bharatmala programme, ICRA noted.
“Otherwise in the event of a shortfall, funds will have to be met through additional borrowings, thereby increasing the debt burden for NHAI. Hence, the success of the TOT as a model will be significant,” it said.
Under the TOT model, the highest bidder gets the right to operate and maintain road assets for 30 years and collect toll in those projects.
The third auction assumes significance given that this is coming after an unsuccessful second bundle where investors quoted a discount to the NHAI’s base price following which it was cancelled.
The bids for the second bundle of TOT were invited by the NHAI in August 2018. Unlike the first bundle, the toll collection potential has been lower for the second bundle. Therefore, it failed to elicit a favourable response in line with the first bundle.
The first bundle under the TOT, which was awarded to Macquarie had a total of nine projects involving 681 km.
As against the NHAI’s expectation – IECV of Rs 6,258 crore, the winning bid of Macquarie stood at Rs 9,682 crore, higher by 55 per cent.
The third bundle has more similarities with the second bundle in terms of toll collection track record and the lack of high-density golden quadrilateral stretches. The overall toll collections are however superior for the third bundle driven by the healthy collections in Madurai-Kanyakumari stretch which alone accounts for around 45 per cent of total toll collections of the bundle, the agency said.
Shubham Jain, SVP & Group Head, Corporate Ratings, ICRA said, “The fact that the first TOT bundle was awarded for a much higher price than the NHAI’s estimate by 55 per cent has raised the expectations for the second bundle. This is evident from the IECV (base price) to the annual toll collection (FY2018) ratio, which was 12.2 times for first bundle and 17.9 times for the second bundle.
“For the third bundle, this ratio has witnessed some moderation… This makes the bundle relatively more attractive than the second one and has the potential to garner favourable investor response.”
The overall funding requirement for the new highway development programme is estimated at Rs 6.92 lakh crore, which is proposed to be funded through budgetary allocations of Rs 3.43 lakh crore over FY2019-FY2022, market borrowings of Rs 2.09 lakh crore, Rs 34,000 crore through proceeds of monetisation through the TOT route and the remaining Rs 1.06 lakh crore through private sector participation, it said.
“A majority of the Bharatmala programme is expected to be undertaken through the National Highways Authority of India (NHAI). While the NHAI borrowing programme is on track, the budgetary allocation in the last two budgets was lower than required (Rs 72,010 crore for FY2020 around 21 per cent lower than what is required, thereby necessitating dependence on other funding avenues.”
The Cabinet had approved the Bharatmala Pariyojana Phase-I along with other programmes in October 2017 involving around 83,000 km (including Bharatmala Pariyojana Phase-I of 24,800 km) of national highway development by FY2022.