Vikram Limaye, chief executive officer of IDFC Ltd., poses for a photograph in Mumbai. Photographer: Dhiraj Singh/Bloomberg
IDFC Ltd. (IDFC), a financing company that is India’s largest lender to road projects, expects the government to take steps to boost investment in infrastructure projects before elections next year.
Prime Minister Manmohan Singh’s administration may accelerate approvals for highways and utilities to help revive economic growth from a decade low, IDFC Chief Executive Officer Vikram Limaye said in a Dec. 9 interview. The government may allow electricity tariffs to rise, paving the way for power projects delayed by imported coal that is about four times the price of the fuel available locally, he said.
Polls before a national election due by May signal the opposition Bharatiya Janata Party is poised to wrest control of government from Singh’s Congress party-led coalition. The premier has been under pressure to improve an infrastructure that is ranked below Kazakhstan and Guatemala by the World Economic Forum and holding back expansion in Asia’s third-biggest economy.
“Certain tactical steps to de-bottleneck the system are what we expect in the next few months,” Limaye said. “There are a lot of projects that are stuck in the last mile which can be cleared, and you can send a signal regarding being effective in terms of project-related matters.”
Borrowing Slows
The highest interest rates among the largest Asian economies have curtailed borrowing for construction projects. An inflation rate that has exceeded an average 10 percent this year has prompted the central bank to raise its benchmark interest rate twice since September.
IDFC’s loan book grew 3 percent in the 12 months to Sept. 30 — 12 times slower than a year earlier — as the lack of new infrastructure projects curbed demand for credit, exchange filings show. The company’s lending
Loans for roads and power projects account for more than 66 percent of the 560 billion rupees ($9 billion) in total lending at the Mumbai-based company, according to an investor presentation on the company’s website. IDFC’s loan book has declined in value from 566 billion rupees in March.
Infrastructure-development companies are selling assets and not starting new projects as the delay in regulatory approval hurts cash flow. GMR Infrastructure Ltd. (GMRI), an Indian builder of roads, utilities and airports, sold 74 percent of its GMR Ulundurpet Expressways unit to IDFC’s Indian Infrastructure Fund for 2.22 billion rupees, according to an exchange filing in September.
Selling Assets
IVRCL Ltd. (IVRC) agreed in April to sell its holdings in three toll roads and said it planned to divest stakes in more projects. Madhucon Projects Ltd. (MDHPJ), a builder of roads and electricity plants based in Hyderabad, plans to raise as much as 19 billion rupees by selling stakes in its highway projects, S. Vaikuntanathan, an adviser to the company, said in June.
“Our view was that infrastructure will be a secular growth story for the next 20 years in India,” Limaye said. “But now we realize that it can be quite volatile. With the rigorous implementation of announcements, we can bring it back on the growth path.”
IDFC shares have dropped 38 percent this year, while those of IVRCL and Madhucon have plunged more than 65 percent, compared with the S&P BSE Sensex index’s 6.8 percent gain. Hyderabad-based IVRCL has reported losses in four out of the past five quarters, data compiled by Bloomberg show. Madhucon posted higher profit in the three months to September, halting a nine-quarter stretch of year-on-year declines.
‘More Bleak’
“Profitability of these companies for the fiscal year ending March 2014 is more bleak than ever, and investors have kept away from investing in this sector,” Sunil Shah, head of research at Axis Securities Ltd., said by phone on Dec. 12. “The opportunity to invest in the infrastructure sector is for the brave-heart investor.”
Loans for power-related construction have been reduced amid domestic coal production hampered by delayed environmental approvals. That’s raised generation costs for utilities forced to rely on imported coal costing about four times the average price paid to Coal India Ltd. (COAL), the state-owned monopoly, according to data compiled by Bloomberg and obtained from Coal India’s website.
Removing Hurdles
The country needs to allow companies to raise rates to boost electricity generation, Limaye said. IDFC had more than 250 billion rupees of loans outstanding with power projects as of Sept. 30, little changed from a year earlier, exchange filings show.
Prime Minister Singh, who set up a panel in January to speed up infrastructure projects, said on Aug. 15 that steps are being taken to remove hurdles in the way of stalled projects.
“Investors and the market are yet to factor into the pricing the way in which infrastructure projects are being fast-tracked now,” Deepak Agarwala, an analyst at Elara Securities Ltd., said by phone on Dec. 12. “It will take 18 months before the steps by the government will translate into company profitability.”
The BJP, India’s main opposition party, will win 162 of parliament’s 545 seats, up from the 116 it holds now, with its six-party alliance taking 186, according to a poll by the C-voter polling agency, India TV and Times Now television published in October, the most recent available. The survey of 24,284 people showed the Congress-led coalition winning 117 seats — about half its current total — with other parties winning the rest.
“In the next few months, we expect that various tariff orders will be passed, clearances for projects will be given and announcements made by the government will be rigorously implemented to bolster sentiment,” Limaye said. “Many infrastructure projects are stuck in the last stages and clearing them will improve cash flows to developers.”
To contact the reporters on this story: Anto Antony in Mumbai at [email protected]; George Smith Alexander in Mumbai at [email protected]
To contact the editor responsible for this story: Darren Boey at [email protected]
The World Bank has approved a US$ 175 million loan to improve connectivity in the state of Gujarat.
The funds will go towards the Second Gujarat State Highway Project, which aims to improve 635 km of the road network passing through 16 districts within the state, particularly the underdeveloped eastern tribal region.
“This project will build on our long engagement in the road sector in India by connecting small and remote habitations in the lagging tribal regions of east Gujarat to the mainstream,” said Onno Ruhl, World Bank country director for India.
The latest funds come after a string of World Bank loans supporting the development of India’s roads this year, including US$ 660 million awarded in October towards India’s National Highways Interconnectivity Improvement Project and the Rajasthan Road Sector Modernisation Project.
In March, the World Bank said it planned to continue its level of annual assistance of between US$ 3 billion to US$ 5 billion a year to India over the next four years with the aim of boosting development in low-income states.
TORONTO: The International Finance Corporation, the World Bank’s private sector financing arm that recently concluded its first-ever global issue of rupee-linked bonds, has urged India to simplify its complex regulatory landscape and aggressively tap domestic investors to finance its massive infrastructure building plans instead of relying on foreign capital.
“In India, the most recent (spate of economic tumult) or what I call a ‘mini-crisis’, has triggered some soul searching in the .. in the government,” said IFC CEO and executive vice president Jin-Yong Cai. “India is trying to do the right thing and build up infrastructure. It is really about how to deal with the complex regulatory framework.”
Jin-Yong, who headed Goldman Sachs’s China business before joining the IFC last year, said there is a lot of interest among global investors about opportunities in India, citing the success of the first tranche of offshore rupee bonds worth $160 million issued by the corporation last week.
“We just launched rupee-linked bonds for investing in India as part of a $1-billion programme, which saw strong subscription interest from investors,” he told an audience of large infrastructure investors and financiers at the national conference on Public Private Partnerships (PPPs) hosted by the Canadian Council for PPPs last week.Warning that the current situation of cheap global capital flows won’t last forever, he said India must develop capital markets and harness local saving for its trillion-dollar infrastructure development agenda “In terms of financing those (infrastructure) transactions, they want to bring in foreign capital. But the best way to mitigate the financial risk more often is to mobilise local capital (which) India has a lot of,” Jin-Yong said.
While the huge amount of global liquidity and cheap capital flows provided a window of opportunity for countries such as India looking to build infrastructure, the IFC CEO said it could also be great risk – as was evident from the adverse impact on emerging markets in recent months due to speculation about the US Federal Reserve’s tapering strategy.
“When you have cheap capital, you think the good days will continue but it’s a time to put your house in order. If the government doesn’t do the necessary reforms and develop local capital markets, I’m not too sure over-issuing long-term debt is a good thing, particularly if you over-borrow from foreign currencies,” he said.
Inadequate infrastructure is the main factor that holds back economic development and blunts poverty alleviation efforts in emerging markets such as India, he said. But fears over regulatory risk and political instability keep global investors away from infrastructure projects, Jin-Yong said
“Political leadership is clearly a prerequisite for successful PPPs. This is where institutions like the IFC and World Bank can play a critical role in advising and influencing governments to ensure that an equal system is worked out where investors benefit along with the people,” he said.
India accounted for $4.5 billion of IFC’s committed investment portfolio as of June this year, higher than any other country. In 2013, the corporation invested $1.38 billion in Indian ventures.
“The shortage of capital in developing countries is unimaginable and for them, using PPP is not an option – it’s a must,” he said, explaining why PPPs form part of IFC’s core approach to addressing the global infrastructure deficit.
The IFC has a portfolio of more than 100 infrastructure projects built on a PPP basis in 50 countries, and its equity investments in such projects have delivered over 20% returns in the last 10 years.
“The actual risk may not be as high as perceived, especially if you are involved in critical infrastructure creation,” he said. “The government will worry as one bad experience will mean other investors won’t come there,” he concluded.
(This was in Toronto at the invitation of the government of Canada)
Global Road Technology’s soil stabilisation and trench compaction products will be used to build highways in India. Pic: Supplied
BUNDALL-based infrastructure company Global Road Technology has inked a $115 million road-building deal with Indian construction and energy giant Triace.
The three-year contract will enable the company to put its instant highway technology to work on projects covering 7000km of Maharashtra, India’s most populous and third largest state.
The Triace deal followed the recent signing of a joint venture agreement between GRT and India’s Pearls Group to form Pearls GRT.
Pearls Group is the parent company of Pearls Australasia, which bought the Sheraton Mirage resort for $62.5 million in 2009 and undertook a $26 million makeover.
GRT’s technology director Ben Skinner said the deal was a sign of the Gold Coast-based company’s intent to be a world leader in road infrastructure development.
“Our technology provides a cost-effective and time-efficient solution to the development of road infrastructure in both remote and developing nations,” he said.
He said up to 6000sq m of road would be applied a day using GRT’s products, as opposed to traditional methods that take up to a month to lay a kilometre of road.
GRT uses special compounds to build roads that are stronger, safer, cheaper, longer-lasting and quicker to install than conventional roads.
Their technology makes it possible to quickly seal poor roads in countries such as India and China to reduce fatalities.
GRT already has a presence across Asia, India and South America.
The company is working with major companies across the mining, oil and gas and government sector.
Mr Skinner said GRT polymers could be mixed with in-situ materials to create a range of road surfaces across a variety of landscapes.
WASHINGTON, October 29, 2013 – The World Bank today approved a $160 million credit for the Rajasthan Road Sector Modernization Project to support the government of Rajasthan improve rural connectivity, enhance road safety and strengthen the road sector management capacity of the state.
In recent years Rajasthan has made considerable progress with developing its rural roads under the Prime Minister’s Gram Sadak Yojana (PMGSY) – a flagship program of the government of India. More than 80% of its habitations, with population of over 500, now have road connectivity. However, some 7,357 villages in the state, with population below 500, do not have road connectivity as they are not covered under the PMGSY.
The Rajasthan Road Sector Modernization Projectapproved today will construct 2500 km of rural roads, connect around 1300 villages that are currently not covered under the PMGSY and also undertake preparatory studies for improving 700 km of priority sections of the state highways. The roads will be built to a bitumen surface standard and will include all necessary bridges and cross drainage works in order to maintain year-round connectivity.
The key components of the project include improving rural connectivity through construction of roads; supporting the government of Rajasthan’s Road Sector Modernization Plan (RSMP) by strengthening institutions, enhancing accountability and introducing new technologies to promote cost effective road construction; and strengthening road safety management systems.
“The Country Partnership Strategy for the World Bank in India is committed to working towards fostering inclusive growth in low-income states like Rajasthan. This project will build on our long engagement in the road sector in India by connecting small and remote habitations in the state to the mainstream. This will help improve access to markets, healthcare and education while creating new jobs and boosting agriculture,” said Onno Ruhl, World Bank Country Director for India. “An important aspect of the project will be on strengthening road safety in order to bring down the number of fatalities and serious injuries from traffic accidents in the state,” he added.
Recognizing that road safety is a critical issue in the country today, the project will support the strengthening of road safety management systems with the objective of reducing fatalities and serious injuries from road accidents in the state. It will include a 100 km safe corridor demonstration project which will focus on measures to improve the safety of pedestrians, bicyclists, drivers, passengers and motorized two-wheelers. The safe corridor will benefit from a multi-sectoral approach with better engineering, enforcement, health care and community awareness.
“The project will support the on-going roads modernization agenda of the Public Works Department (PWD) through improved asset management, financial sustainability and road user focus. The project will also demonstrate best practice in road design and construction, traffic management to improve road safety and environmental protection measures,” saidMesfin Wodajo Jijo, senior transport specialist and the project’s task team leader.
The gradual transformation of the PWD will not only help enhance the quality and effectiveness of its delivery but also sustain the assets created under these programs.
The Project will be financed by a credit from the International Development Association (IDA) – the World Bank’s concessionary lending arm – which provides interest-free loans with 25 years to maturity and a grace period of five years.
Subhomoy Bhattacharjee , Priyadarshi Siddhanta : New Delhi,
Reserve Bank of India Governor Raghuram Rajan is expected to ask the government for some clear interventions in the coal and road sector to stop the mounting of bad loans in the infrastructure sector with banks.
RBI has reason to be worried as the government plans to hold at least two major auctions within this fiscal for telecom spectrum and coal blocks.
But a clutch of leading public sector banks have informed the RBI they will not be able to lend to companies for these auctions since their infra lending has peaked.
The list includes State Bank of India, Bank of Baroda and others who informed Governor Rajan’s team about their problems in a meeting, last month.
The total exposure of the banking sector to the infrastructure sector is Rs 7,94,300 crore as on September 2013 (RBI data). The gross non-performing assets and restructured advances of public sector banks was almost 12 per cent (11.87) of their total loans.
The banks want some payments to come in from the power generation companies so that the level of their stiff exposure melts somewhat.
For the telecom auctions the banks will be expected to lay out about Rs 40,000 crore, while the sum for coal blocks is expected to be a bit lower.
Senior finance ministry officials have endorsed the concerns of the scheduled commercial banks that funds provided to many projects have hardened due to delays and court cases.
An informed source said RBI wants the finance ministry allow power producers with fuel supply agreements prior to 2009 to opt for buying some imported coal instead of their entire domestic quota. This will free up space for power producers coming in later to get domestic coal up to some extent and make them willing to begin repaying some of their outstanding loans to banks.
The RBI Governor had earlier as the chief economic adviser to the finance ministry suggested to the coal and power ministries to create similar incentives for thermal power plants.
Rajan’s proactive stand is different from the usual position taken by successive RBI governors who left the initiative in these matters to the government to sort out.
Infra exposure
* Total bank exposure to the
infrastructure sector is R7,94,300 crore as on September 2013
* The gross NPA and restructured advances of public sector banks was 11.87% of their total loans
* For telecom auctions banks will be expected to lay out about R40,000 crore, for coal blocks the amount is expected to be lower.
The Hindu : Shimoga – Mandagadde road was blocked due to Tunga flood. File Photo: Vaidya
Public Works Department to take up work next month
The Public Works Department (PWD) will spend Rs. 1,000 crore to repair rain-damaged State highways and major district roads in the State.
Road repairs will be taken up from next month, Public Works Minister H.C. Mahadevappa told presspersons in Bangalore on Tuesday.
Action plan
He said that officials are preparing an action plan and they will submit it to the Finance Department for release of funds. About 1,000 km of main district roads and 177 km of State highways have suffered damage, he said.
The Minister said that road repair work would be completed by the end of February next year. The department had taken up repair work on 3,000 km of State highways in the first phase and work was nearing completion. Roads were damaged on account of heavy rain during the monsoon.
To a question, the Minister said that the government had cleared arrears of Rs. 250 crore owing to road and building contractors and another Rs. 850 crore would be paid soon.
Workshop
The Indian Road Congress and the Public Works Department have decided to hold a two-day regional workshop on promoting usage of new technologies, material, techniques and equipment in road construction, here from Wednesday.
The workshop will be held at Palace Grounds (Gayatri Vihar) and Union Minister for Road Transport and Highways Oscar Fernandes will release a souvenir. Mr. Mahadevappa will preside over the event. President of Indian Roads Congress Kandasamy and Secretary-General Vishu Shankar Prasad will participate.
Experts will shed light on evolving technologies in the construction of roads and bridges. Engineers and experts will deliver lectures on ‘Retro-reflective material for road safety signage’ and ‘Processed steel slag as alternate aggregate for flexible pavements’ and other related issues.
Daniel Berger, Director, Quality, Research and Development, Orafol Europe GmbH, Ireland, and other experts had been invited to the workshop, Mr. Mahadevappa said.
There would be an exhibition on the usage of manufacturing and slag sand in civil construction, application of new technologies, material, techniques and equipment and application of nanotechnology in civil constructions, he added.
The proposed highway, starting from Moreh in Manipur to Mae Sot in Thailand, will pass through Myanmar.
Commerce minister Anand Sharma has said that work on a highway to link India with Myanmar and Thailand should start soon. This is welcome. But the government has to be more ambitious.The proposed highway, starting from Moreh in Manipur to Mae Sot in Thailand, will pass through Myanmar. It should also turn northwards and connect with Kunming, the biggest city of the province of Yunnan in China.
China is already working on ambitious highway-building projects linking coastal Myanmar to Yunnan and it makes great sense to link the highway from India with this. That way, trade would open up between eastern India all the way to landlocked southern China, Myanmar and Thailand. India should also negotiate with Bangladesh for this highway to pass through its territory.
That way, instead of terminating traffic and commerce in the northeast, the highway could run all the way to Kolkata. Once there, it would be easy to link the East-West Corridor with the India-Myanmar-China-Thailand highway.
Immense trade potential could open up if, say, Pune is connected to Kunming via one long, continuous highway. Along the way, goods can also be dropped off in markets in Bangladesh, the north-east, Myanmar and on to Thailand.
Southern Asia is among the world’s least-integrated regions. It was not always thus. Before Partition, south and south-east Asia was a closely networked hub of commerce and services. In the 1930s, the British built a road between Burma and southern China.
During WWII, American general Joe Stilwell built another one from Ledo in Assam to Kunming, to supply Chinese fighting the Japanese. The Stilwell road, too, should be revived, repaired and used extensively to boost trade and commerce between India, China and south-east Asia.
India main exports to these countries include pharma, machinery, vehicles, plastics and cotton while imports are pulses, rubber, wood, mineral oil.
NEW DELHI: The proposed highway covering India, Myanmar and Thailand is expected to be operational soon, Commerce and Industry Minister Anand Sharma said today.The highway will help in smoother and faster movement of goods between these regions.
“We are presently working with the governments of Myanmar and Thailand to develop the trilateral highway which hopefully will be completed soon,” Sharma said here at a CII function.
The idea of the highway – from Moreh in Manipur to Mae Sot in Thailand, via Myanmar – was conceived at the trilateral ministerial meeting on transport linkages in Yangon in April 2002. It represents a significant step in establishing connectivity between India and South East Asian countries.
Myanmar is source of one-third of India’s imports in pulses and one-fifth in timber.
Emphasising on the need to enhance road, air and sea connectivity, Sharma said that India is also working to develop the Kaladan multi-modal transport corridor which comprises waterway and roadway.
Kaladan Multi-Modal Transit Transport Project will connect the eastern Indian seaport of Kolkata with Sittwe port in Myanmar by sea; it will then link Sittwe to Mizoram via river and road transport.
Sharma said the project and the transport corridor will connect these countries (Cambodia, Laos, Vietnam and Mayanmar) with the North-Eastern part of India.
The government is also looking at connecting India and Myanmar through a sea link, he added.
He said: “Connectivity by air, road and sea in important. We have entire north east India which is progressing but still lagging behind the rest of the country because of geography, constraints of infrastructure.”
Sharma was speaking at the CII’s Business Conclave of Cambodia, Laos, Vietnam and Mayanmar.
Further, the minister said that trade between India and the four South East Asian nations is “well below potential”. The two-way commerce between India and these nations stood at USD 8.5 billion in 2012-13.
“We need to do more. We have to look at not only increasing economic relation but deepening and diversifying the priority sectors which hold potential like IT, agri, healthcare, oil and gas and textile,” he said.
Speaking on the occasion, representatives of these four countries sought investments from India in sectors like IT, infrastructure, energy, power and agro processing.
“We have opened our doors for India. We welcome you,” Cambodian Secretary of State, Ministry of Planning, Hou Taing Eng said.
India main exports to these countries include pharma, machinery, vehicles, plastics and cotton while imports are pulses, rubber, wood, mineral oil and spices.
New Delhi: The government will soon constitute a panel, headed by PMEAC Chairman C Rangarajan, to look into the issues pertaining to bailout of highway developers.Rangarajan, who heads the Prime Minister’s Economic Advisory Council, is expected to announce the constitution of the three-member panel soon, a source told the agency, adding that it could be as early as Thursday.
The government last week approved a proposal for the postponement of premium payments by highway developers and has referred the matter to the Rangarajan panel.
The move is likely to provide relief to players such as GMR, GVK and Ashoka Buildcon. Their projects have been facing delays on account of high premium — the payment made by the developer to National Highways Authority of India under the build, operate and transfer (BOT) mode.
The premium, which is offered by companies during the bidding stage, is based on projected returns from tolls.
The Ministry of Road Transport and Highways had sent a proposal to the Cabinet seeking its nod for rescheduling of premiums of about Rs 1 lakh crore in case of 23 awarded BOT (Toll) projects.
Global Road Technology’s soil stabilisation and trench compaction products will be used to build highways in India. Pic: Supplied
