Easy exit options for infrastructure could release Rs 4,000 crore in system: Study

MUMBAI: Allowing easy exit options to infrastructure companies that have invested in public private partnership (PPP) could release as much as Rs 4,000 crore, a recent study by India Ratings and Research said.

If the companies manage to get the exit, they could invest the amount in retiring their debt and in some cases investing in other projects.

" Cabinet committee on Economic Affairs’ approval for road developers to fully exit their equity investment (compared with the previous cap of 76 per cent) for all projects after two years of construction could provide opportunities in mergers and acquisitions," the research report pointed out.

Out of the 86 completed projects equivalent to 5,200 km that have been completed under PPP, about Rs 4,000 crore of additional residual equity can be released under the proposed divestment scheme. This could be used for investment in other projects of the developers. Prior to the current policy direction, the possible equity divestment could have been around Rs 1,100 crore, the report added.

Many infrastructure companies have seen their debt burden increase in last few years. On the other hand investors, including strategic and private equity investors, have not been able to get exit in the projects that they had invested.

According to India Ratings some of the recent projects indicate the inability to hike toll rates, especially for concessions 100 per cent linked to wholesale price inflation. Considering the prevailing low inflation scenario, the potential benefits of the growth in traffic numbers could be eroded. Also, in the event of drop in toll revenue impairing the debt service, the sponsors support may be required.

"This move will help developers to sell projects which have predictable cash flows to investors looking for such assets, but will not ease troubles of stranded projects due to cost escalations or regulatory issues. The current move by the government is a push to the infrastructure sector which had stalled projects worth INR8.8trn or 7 per cent of GDP as of December 2014," the report stated.