Speedier exits for highway developers like L&T, Reliance and GMR in offing

NEW DELHI: There is good news for highway developers such as L&T, Reliance and GMR with the National Highways Authority of India ( NHAI) formulating a plan to speed up the exit of contractors, who take up projects under the build-operate-transfer ( BOT) route.

The move follows a virtual standstill in the award of new contracts as developers are strained for equity and are unable to raise fresh resources to take up new road stretches. Apart from a weak equity markets preventing public offers, such as those by IL&FS Transportation Networks a few years ago, even private equity funding has dried up in recent months because of the global economic environment and the resultant slowdown in India.

Since 2009, the rules allow developers to exit two years after a project is completed. Developers of around a 100 projects, which run into thousands of crores, do not have this option for projects bagged before 2009.


The new plan is to permit exit immediately after construction is completed in all BOT projects, helping developers unlock value from these projects where cash flow has begun. Last month, the NHAI board decided to amend the rules but a final decision will be taken by an inter-ministerial group.

NHAI feels once they are also allowed to 100% divestment of their stake in the already completed projects, these companies will have more equity available with them. As they exit from the project, firms of similar net worth specializing in operation and maintenance would take over the project for rest of the concession period.

Officials said several international majors such as Macquarie and Morgan Stanley have evinced interest in running projects after taking them over from the developer. In addition, NHAI has sounded out Indian banks to scout for other potential investors, although the sale needs to be approved by the highway authority. The developers are, of course, cheering the move. "Why should companies be made to stick to a project for 15-20 years when they can take up new projects? Allowing them to exit from completed projects will improve investment scenario," O B Raju, managing director (highways) of GMR said.

Raising the concern of private equity drying up, Singh in his letter has said shares of many highway developer companies those case out with IPOs four-five years back are going to the market at "steep discounts."