In a big sigh of relief for financially-stressed highway developers, the government has cleared a long awaiting bailout policy for financially-stressed developers which would also allow the developers to defer the premium that they have committed to pay the government.
As per the bailout policy, relief would be offered for highway developers through a mechanism called revenue shortfall loan under an article of the model concession agreement between developers and the government. Highway projects that are facing economic stress would now be eligible for this article which allows developers to reschedule the cash shortfall between necessary expenses and toll revenue in case of political events or default by the National Highway Authority of India (NHAI). Further, under this provision, the money that the developers need to pay the government would be considered as an expense.
The move is likely to benefit started highway projects facing difficulty in servicing debt. Now, the developers can service debt fully as it will be given priority over premium. Highway projects involving expansion from two lane to four lane are likely to benefit more as their debt servicing commences with tolling. On the other hand, projects involving expansion to six lane may not benefit so much owing to the fact that these projects have a moratorium period for servicing debt but toll collections commence from the beginning, thus, they would have to bring in equity on their own. Furthermore, debt flow to sector is also expected to improve as bankers will get more comfort and stressed projects could be prevented from turning into non-performing assets.
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