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100 per cent divestment: Unlocking the private potential

In the past three years 1,427 road projects were sanctioned, of which 437 are running behind schedule, 101 are under dispute and 1,022 projects have been completed while 57 were terminated.

Written by Sharmistha Mukherjee | Published: September 2, 2015 3:19:20 am

Twenty-odd road projects stretching over 1,500 km and being executed on a public-private partnership (PPP) basis may benefit immediately from Centre’s decision to permit developers to divest 100 per cent equity in projects two years after completion. The move will help financially-stressed private investors monestise assets and thereby unlock capital to the tune of Rs 4,000 crore for future projects or to retire debt.

As per estimates of India Ratings there are 86 projects equivalent to 5,200 km that have been completed (source: National Highways Authority of India) under PPP. Around Rs 4,000 crore of additional residual equity can be released under the proposed divestment scheme. Previously, developers of road projects, signed before 2009, had to hold at least 26 per cent stake, a norm that tied them to these projects even if they had executed them. The latest decision permitting developers to divest 100 per cent equity would present a total opportunity to raise Rs 15,000 crore through monetisation of completed assets.

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The approval would allow developers to invest proceeds from the sale of divested equity in incomplete projects of NHAI or any other road projects besides any power sector projects or to retire their debt to financial institutions in any other infrastructure works. “This will result in physical completion of languishing infrastructure projects,” the government said in a statement.

India Ratings expects the measure to boost weak sponsors in about 20 projects. “This could de-stress and release the equity, helping them to shore up their balance sheets”, the ratings agency said in a report released earlier this week.

The move comes at a time when the private sector’s interest in PPP has dwindled to the extent that most such projects have failed to get even a single bid. At the time of clearing the exit policy earlier in May this year, the Ministry of Road, Transport & Highways had said, “It is relevant to note here that during the last few years, PPP projects have not been able to attract bids; one of the primary reasons being lack of availability of equity in the market among qualified bidders.” Most private firms have refrained from bidding for projects due to liquidity issues or excessive debt over the last few years. Between 2012 and 2014, about 21 projects did not receive a single response from private investors.

On direction from the Prime Minister’s Office (PMO), the ministry has now worked out the modalities based on which developers can re-invest funds acquired through divestment of 100 per cent equity in completed projects. The government is hoping to give a shot in the arm to BOT-toll projects once this equity is unlocked and reinvested in new projects including up to 1,500 km of new highways in PPP mode. The government plans to award projects of up to 10,000 km during 2015-16.

NHAI has received interest from companies including Piramal Enterprises, the Tata Group and Reliance Infrastructure; private equity funds such as SBI Macquarie; and foreign pension funds in taking over completed projects, informed government sources.

In the past three years 1,427 road projects were sanctioned, of which 437 are running behind schedule, 101 are under dispute and 1,022 projects have been completed while 57 were terminated.

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