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Monday, 28 January 2013 00:19
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IDFC taking over Gurgaon expressway a good idea


Going by the backroom negotiations, as FE reported last week, infrastructure financing firm IDFC will take over the troubled Delhi-Gurgaon expressway from the current franchisee Delhi-Gurgaon Super Connectivity Limited (DSCL) by paying one rupee for the equity and guaranteeing the entire debt of R1,600 crore. If all goes to plan, this holds important lessons on how to restructure troubled projects—National Highways Authority of India (NHAI), the concessioning authority, had issued DSCL a termination notice last year in February alleging operational incompetence as well as for not taking its permission before raising R1,275 crore of loans from IDFC. While it is not clear whether IDFC has found another buyer for the DSCL equity, termination would have hurt it badly. Under the original concession, as in the case of all such projects, NHAI guaranteed to pay the expressway’s debt up to a certain ceiling in case the project was cancelled—lenders like IDFC, however, reckoned the expressway would attract more traffic than NHAI envisaged and so, based on securitisation of future receivables, lent it far more than NHAI had guaranteed. So, had the project been terminated, while DSCL would have lost its equity, IDFC stood to lose many times more.

Once IDFC takes over the expressway, it has two options: sell this to another promoter who, hopefully, can make it work well enough to service the debt or to appoint an operating/tolling company to fix the mess. One solution, being implemented right now, is that on the Delhi-Noida-Delhi (DND) expressway where, thanks to repair work on the Kalindi Kunj route to/from Noida, there has been a sudden rush of traffic. Since the DND toll plaza is in danger of getting choked like the Delhi-Gurgaon one, DND managers have an army of helpers at the toll plaza collecting toll and printing out receipts on handheld printers as cars line up at the toll gates—so, in the time one car gets through each toll gate at the Delhi-Gurgaon toll plaza, 10-15 get cleared on the DND. Since a large part of the traffic on the Delhi-Gurgaon expressway is actually traffic going through Gurgaon towards Jaipur, another solution is to give this traffic non-stop passage through the first toll plaza near Ambience mall and then to toll it at the next plaza where the traffic is less once the Gurgaon traffic has exited. Or offer attractive discounts to get users to buy tags that allow non-stop access through the toll plaza, so that the kind of traffic pileups being seen today are avoided …

Getting the original concessionaire to take a huge haircut as is being envisaged right now is the way to go on all such projects. For the new buyer who will either take over the equity for free or at a hugely discounted value, even relatively small earnings translate into handsome returns on equity. For the lenders, there’s a better chance at being able to recover their money. And, since the original firm is out of the picture, this does away with the incentive to bid high for projects often with the intent of renegotiating concessions later.


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