NHAI may get favourable response in third road assets auction

As timely monetisation of road assets through the toll-operate-transfer (TOT) route becomes critical to support the Bharatmala programme, the moderation of NHAI's expectations for the third bundle is key to garner a favourable response from investors, the report said. In October 2017, 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 FY22.

The first bundle under the TOT, which was awarded to Macquarie had a total of nine projects involving 681 km. As against the National Highways Authority of India (NHAI) expectation of Rs 6,258 crore, the winning bid stood at Rs 9,682 crore. According to the rating agency Icra, the base price to the annual toll collection (FY18) ratio, which was 12.2 times for the first bundle, garnered a response of 18.9 times from the winning bid.

This raised the expectation of NHAI for the second bundle, for which the base price to the annual toll collection (FY18) ratio was increased to 17.9 times. However, it received a subdued response as the H1 bid was just 15.4 times the base price as against 17.9 times. "The base price multiple for the second bundle is possibly aligned with the multiple for the winning bid for the first bundle of 18.9. For the recently announced third bundle, this ratio has witnessed some moderation to around 14.8 times keeping in mind the subdued response for the second bundle," Icra's Shubham Jain said.

This makes the bundle relatively more attractive than the second one and has the potential to garner favourable investor response, he said. He further noted that 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," Jain said. Icra further pointed out that timely monetisation of mature road assets 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.

"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," Jain added. The overall funding requirement for the new highway development programme is estimated at Rs 6.92 trillion, which is proposed to be funded through budgetary allocations of Rs 3.43 trillion over FY19-FY22, market borrowings of Rs 2.09 trillion, Rs 34,000 crore through proceeds of monetisation through TOT route and the remaining Rs 1.06 trillion through private sector participation.

"A majority of the Bharatmala programme is expected to be undertaken through NHAI. While the NHAI borrowing programme is on track, the budgetary allocation in the last two budgets was lower than required, thereby necessitating dependence on other funding avenues," Jain added.