Road projects: Exit norms can bring in funds, cut debt, say infra firms

July 30, 2013


A toll plaza on the Chennai-Bangalore National Highway. - Bijoy Ghosh
A toll plaza on the Chennai-Bangalore National Highway. – Bijoy Ghosh



Companies doing sizeable business in the infrastructure space have welcomed the Government’s move to bring in flexibility in the roads sector, including revised norms that permit stake sale in projects right after commissioning.

The move is expected to accelerate the rate of churn of projects, increase the size of disinvestment, bring about liquidity, aid in debt swap and infuse fresh equity into new projects.

R. Balarami Reddy, Executive Director, Finance, IVRCL, told Business Line that the decision will help accelerate the process of exits and give more flexibility to the developer.


Until now, a developer of road projects under the National Highways Authority programme could divest up to 74 per cent stake in the project two years after the date of commissioning. The developer had to retain the rest during the concessional phase.

Now, the Cabinet Committee of Economic Affairs has permitted infrastructure companies to sell their stakes soon after the date of commissioning. This could be in tranches or for the entire project value , Reddy explained.

Sridhar Cherukuri, Chairman and Managing Director of Transstroy (India) Ltd , said, “These changes bring in flexibility to developers to divest stake and redeploy funds into new projects. We are at an advanced stake of concluding deals.”

T. Adibabu, Chief Operating Officer, Finance, Lanco Infratech Ltd, said the infrastructure sector has been waiting anxiously for regulatory changes as it would help infuse liquidity for developers.

“By disinvestment of stake in mature projects, companies can pass on debt to the buyer. It releases the promoter’s equity, which can be redeployed into new projects. The developer can strike new loan contracts, freeing up high-cost debt,” Adibabu said.

Several pension funds and overseas investors are keen to invest in completed road projects. The Government move will pave way for such investment. Internal rate of return on investments too will go up, he said.


M. Gautham Reddy, Executive Director of Ramky Infrastructure, said, “While the norms help in infusing liquidity, other critical elements relating to premium has been deferred. This is a setback. But for the buyer, it helps in gaining management control by taking up to 51 per cent stake.”

IVRCL had to re-negotiate and tweak a stake sale deal with TRIL, a Tata Group entity, for divesting stake in three road projects for Rs 2,200 crore, in keeping with existing divestment norms.

Companies such as Madhucon Projects, IVRCL, Transstroy, Lanco and NCC Ltd are all in the process of divesting stakes in completed projects.



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