Views of Rajeshwar Burla

“Pace of asset monetisation for NHAI to improve with successful launch of InvIT”

Infrastructure investment trusts (InvITs) are being sought after by infrastructure companies for recycling capital. While a number of private developers have already floated InvITs, the National Highways Authority of India (NHAI) became the second public entity to join the InvIT bandwagon, after Power Grid Corporation of India Limited (Powergrid). Rajeshwar Burla, group head, corporate ratings, ICRA Limited, comments on recent developments in this space…

What has been the overall market response to NHAI’s InvIT?

The response to NHAI’s InvIT has been good. Marquee investors comprising foreign pension funds, domestic insurance companies and mu­tual funds, among others, participated in the is­suance.

What is the role of asset monetisation in NHAI’s debt reduction and capex plans? 

If we look at the expenditure profile of NHAI, the major expenses, other than debt servicing, are towards land acquisition, road construction and grant payments for hybrid annuity model (HAM) projects. On a cumulative basis, engineering, procurement and construction (EPC) and HAM together accounted for 96 per cent of the total awards in the past five years. NHAI has to fund 100 per cent upfront in the case of EPC. For HAM, it is 40 per cent upfront funding and the remaining 60 per cent over a period of 15 years. Therefore, the financial burden on NHAI continues to remain high. The rise in land acquisition costs and the skewed award mix have increased NHAI’s total debt by more than 2.5 times to over Rs 3.07 trillion as of March 2021 from Rs 1.22 trillion as of March 2018.

The monetisation of mature operational assets is important for meeting the funding requirements of the ongoing Bharatmala Pariyojana. While the toll-operate-transfer (TOT) and InvIT models are being pursued ac­tively, timely monetisation remains important. The average cost of award for the Bha­ratmala Pari­yojana stood at Rs 238 million per km, which is 54 per cent higher than the initial estimated cost of Rs 155 million per km. This is largely on account of the steep increase in land acquisition costs. The total outlay to­war­ds the Bha­ratmala Pariyojana is now estimated at up­wards of Rs 9.6 trillion as against Rs 6.9 trillion earlier. In this context, the success of the asset monetisation programmes of NHAI – both TOT and InvIT – will be critical for funding the cost escalations.

What is the potential of such products in the Indian market? 

With a track record of more than five years for InvITs, a supporting regulatory framework and the increase in the comfort level of various sta­k­e­holders with regard to these platforms, the pot­ential remains huge. Infrastructure assets with a three- to five-year operating track record ac­ross various segments such as roads, gas pipeline, digital fibre, power transmission and renewables are ideal candidates for monetisation through this platform. Of this, assets worth over Rs 2.5 trillion are expected to be monetised through InvITs in the next one year. The Government of India, for its National Monetisa­tion Pipeline (NMP), is also using these platforms for NHAI, Powergrid and GAIL, among others. NHAI alone is looking to raise Rs 1.6 trillion by monetising 27,000 km in the next four years under the NMP, the majority of which could be through the InvIT route.

Over the years, lenders became more comfortable lending at the trust level. This is also reflected in the compression in the spread between the borrowing rate of InvITs and five-year government security yields over the years. The borrowing rate for an AAA-rated InvIT used to be at a premium of more than 100 basis points when compared to a AAA-rated corporate till 2020, which is now almost at par. With InvITs now recognised as borrowers under the SARFAESI Act, lenders to these trusts will have adequate statutory enforcement options, the absence of which was earlier becoming a constraint for lending directly at the trust level. Recent debt issuances took place at the trust level. Insurance companies, mutual funds and pension funds have a minimal presence in infrastructure. InvITs are expected to see healthy traction in the near to medium term, supported by the track record of entities that have already floated such structures, enabling regulatory de­velopments and a focus on attracting investments into the infrastructure space. The In­surance Regulatory and Develop­ment Authority of India has recently allowed insurers to invest in debt instruments of InvITs rated AA and above as part of their approved investments, which is evidence of the growing comfort of in­vestors in such structures.

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