Though half of the build, operate and transfer (BOT) expressways being built remain in danger of defaulting — according to Crisil, 5,080 km of roads with an outstanding debt of Rs 45,900 crore are at very high/high default risk — no resolution was reached at the meeting between bankers and officials of the roads ministry and the National Highways Authority of India (NHAI) earlier this month. A final decision on the bankers’ demand of a pari passu charge on tolls from these expressways will be taken in a meeting with finance minister Arun Jaitleylater this month.
As per a Cabinet decision that allows NHAI to inject a one-time equity in the project, it is to get first charge on the toll from the expressways; banks, however, have asked for a pari passu charge. This means that if banks have lent Rs 800 crore to the project and now have to lend Rs 100 crore more while NHAI infuses another Rs 100 crore, the latter will get only a tenth of the tolls. NHAI wants to recover its Rs 100 crore from the toll before banks get to the money.
NHAI’s argument is that, in the past, banks over-lent to projects, so a pari passu charge is unfair. If a project was valued at Rs 1,000 crore by NHAI, banks could have lent it even Rs 2,000 crore in some cases — in such a situation, NHAI argues, banks will get the lion’s share of the toll collections due to the fact that the project was gold-plated.
The crux of the NHAI dispute with IDFC on the Delhi-Gurgaon expressway was that the lending done was way above the project cost and that this extra lending had not been approved of by NHAI.
At the meeting, sources say, banks agreed that future lending would take place only at the valuation made by NHAI while bidding out the project.
In 2010, when he was adviser to the deputy chairman of the Planning Commission, Gajendra Haldea had flagged this issue in a paper called ‘sub-prime highways’.
Haldea had listed 20 projects where, while NHAI had estimated the project costs at Rs 13,700 crore, banks had lent to them on the assumption that they were worth Rs 26,000 crore.
In each case, the banks had projected a toll stream from these projects and lent on the basis of a discounted cash flow. With the revenues not materialising, however, these projects soon ran into all manner of trouble. According to Crisil, around 40% of completed BOT projects are in danger of defaulting (see graphic) due to low toll collections. In FY16, Crisil estimated these roads required a toll growth of 37% versus a likely 10% or so. These roads, which account for around 40% of all BOT roads, have an outstanding debt of Rs 17,200 crore.