HAM projects facing funding woes: Ind-Ra report

More than half of the hybrid annuity model (HAM) projects awarded till July this year are awaiting financial closure, India Ratings and Research (Ind-Ra) said, while maintaining a stable outlook on the overall transport infrastructure sector.

“India Ratings’s analysis of the ~1.18 trillion worth of hybrid annuity model (HAM) projects awarded until July 2018 reveals only around ~580 billion achieved financial closure, due to lack of appetite and lending freeze on many public sector banks,” the agency said in its report on the sector released on Thursday. The rating agency said about 18 per cent of the ~600 billion worth of projects, which await financial closure, may be affected by this. It added the number of HAM awards in the current financial year may slow down given the peak cumulative order book to revenue ratio of five major players — which was at a four-year high.

The National Highways Authority of India (NHAI), which is the awarding agency for both HAM and toll-operate transfer (TOT) projects, is also expected to struggle with its TOT model. Ind-Ra expects the second TOT project, which aims at generating ~54 billion, to go to bid in the December quarter and witness limited aggression.

“The aggression will be limited, given the learnings from the first project. While the financial closure for the first TOT project is achieved, the key challenges of determining first year’s revenue and underwriting risk for banks may reduce aggression in the second project,” the report said.

In what could help ease funding woes for the sector, India Ratings is hopeful that more under construction projects will find buyers going forward. “We expect under construction HAM projects to garner a reasonable share in the acquisition market.

Traditionally, asset sales were restricted to operational projects, however in FY18, the sector witnessed for the first time a bouquet of under construction HAM projects being picked up by Shrem Group from Dilip Buildcon,” the report said. Ind-Ra added this trend will gain pace and more deals would happen over the next 12 months.