Shy away from approving funds for HAM projects citing lower returns, risk on account of lesser equity from developers
When it comes to achieving financial closure for national highway projects carried out under Hybrid Annuity Model (HAM), not all infrastructure firms are able to sail smoothly.
An infrastructure analyst told DNA Money that there are various projects where aggressive bidding was witnessed, resulting in lower returns. This meant lenders being sceptical in funding such projects.
Another analyst said that lesser equity from the developers is another bone of contention raised by lenders in approving funds for HAM projects.
HAM model entails lower sponsor contribution during the construction period and also lower risk for them. The concessionaires' contribution is just around 10-12%. Whereas, under the earlier build-operate-transfer model, the developers had to contribute around 15-25%.
"Some players like MEP Infrastructure Developers Ltd are having better financial bandwidth and bagging HAM projects repeatedly. They are doing good in achieving financial closure," said Sandeep Upadhyay, MD and CEO, Centrum Infrastructure Advisory Ltd.
Jayant Mhaiskar, vice chairman and managing director, MEP Infrastructure Developers Ltd, said, "Out of the six projects that we have won, we have achieved financial closure for five. For the sixth project – Mahuva-Kagavadar (in Gujarat) –we will be achieving financial closure in a few days."
Mhaiskar agreed that the companies which have migrated from their traditional engineering procurement and construction (EPC) model of business (or other financial model) to HAM, are finding it tougher to sustain in the market and in sourcing finance.
With HAM being a somewhat new concept, there are developers who do not have any prior experience of such projects and bankers are uncomfortable financing them. Whereas firms like Sadbhav Infrastructure Project Ltd, PNC Infratech and others who have won multiple HAM projects find it relatively easier to convince the lenders.
This fiscal, three projects of (NHAI) have got cancelled due to financial closure-related issues. A total of 36 projects were awarded under HAM, but only 13 of them have secured finances.
For example, MBL Infrastructures is among the players who had to surrender a project due to problems cropping up while trying to achieve financial closure. The other two companies were Overseas Infrastructure Alliance and Gawar Construction Ltd.
Since the introduction of HAM, new players have emerged in the market, but the big players who had been relying on BOT projects have now moved on to EPC projects.
Bankers are even concerned about these tier-II and newer players. Lenders are also advancing their funds depending upon the kind of highway projects. If the contract is for a greenfield project the sentiment isn't positive while widening an existing national highway will have relatively better chances of securing funds.
Another area of concern for lenders is the returns from HAM. "Lenders at times feel that the returns from the project do not commensurate the risks involved," said an industry player.
As per the HAM policy, the government will collect toll and the developer will get annuity payments over 15 years along with interest. The developer will also stand to receive operation and maintenance payments bi-annually along with the annuity payments.
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