As many as 52 road projects worth Rs 37,019 crore were sold between 2015 and 2018, due to liquidity crisis faced by their promoters or the special purpose vehicles executing them, says a report.
According to the data collated by rating agency Icra Wednesday, M&As in the road sector, which saw an improvement post-relaxation of the exit policy in May 2015, has seen slowdown after mid-2016, possibly due to the introduction of the toll-operate-transfer (TOT) model.
Of the total 52 projects, six were sold at a discount, while the remaining projects were sold at a premium ranging between 2 and 21 percent.
“Most road projects gave low returns to promoters. Developers with a weak credit profile sold their assets at a loss due to liquidity crisis more,” Icra said, adding the change of ownership has significantly improved the refinancing ability of these projects.
Many projects have refinanced debt with longer tenure and lower interest rate. Around one-third of the assets saw steep rating upgrades, the median upward rating transition in these cases is five notches.
The report also pointed out that in 2018, three assets were sold through substitution route. Of which one was initiated by lenders as a distressed sale, while the rest were initiated by concessionaire through harmonious substitution.
Icra also stated that execution of projects grew at an annual growth rate of 23 percent between FY14 and FY18 and stood at 6,715 km during the first nine months of FY19.
“Some policy measures that has had a direct bearing on the pace of execution are the awards of project after securing 80 percent right of way, focus on resolution of stuck projects and online filing for clearances. As a result, the highest number of projects were awarded in FY18.”
As per the report, the awarding pace grew at 47 percent annually to 17,055 km in FY18 from 3,621 km in FY14. Of these, NHAI awarded 7,397 km in FY2018. The awards for the first nine months of FY19 totalled 6,407 km.
On the hybrid annuity projects, it noted that around 60 percent contracts awarded have achieved financial closure till date with private sector banks taking lead as many state-run banks are under principal component analysis.
For around 34 percent of total HAM awards, there is a delay in announcing the appointed date, despite achieving financial closure due to the lack of possession of 80 percent of the right of way.
The report has a stable outlook for the sector given the significant pipeline of projects to be awarded which will boost the order book of road developers/EPC contractors.
From a profitability perspective, the report said reduction in expected delays in execution is a positive for the EPC contractors.
“Overall, we expect the growth in toll collections to witness low double-digit growth in FY2020. However, high interest expenses due to leveraged balance sheets may exert pressure on net profitability,” the report said.
• The introduction of Goods & Services Tax (GST) has thrown a spanner in India’s clean energy transition, implicitly favouring coal-fired power over solar photo voltaic (PV) generation and incentivising greater take up of coal based sources, a study shows.
• The study commissioned by Canada based International Institute for Sustainable Development (IISD) and Council on Energy, Environment & Water (CEEW) says post the roll out of GST, the levelized cost of energy (LCOE) for existing coal-based thermal power stations has fallen by one or two per cent, depending on the share of imported coal used. On the contrary, LCOE for solar PV has risen six per cent. This does not take into account the cost of uncertainty for solar PV developers, who have not known how their projects would be treated under the new taxation system until the recent clarification in December 2018 by the GST Council.
• The LCOE computation for coal-fired thermal power was done assuming a typical 500 Mw capacity. A significant proportion of such plants between 2003 and 2016 are 500 Mw in size, influenced by both fixed and variable costs.
• Overall, the variable LCOE of a coal thermal power plan, assuming that it uses only domestic coal decreased by almost 1.6 per cent post-GST reform. Plants using a mix of domestic and imported coal would see a smaller decrease of one per cent, largely due to the influence of higher taxes on imported coal.
• The LCOE is a metric that permits comparison of the costs of electricity generation across various generation sources. It represents costs on a per kWh basis accounting for the total lifetime of a project. The costs of any project consist of two components—fixed costs and variable costs. There is no fuel cost for solar PV, and other variable costs, such as operations and maintenance, are small. As a result, the LCOE for solar PV generation is driven almost entirely by the estimated capital cost. On the other hand, the LCOE for coal thermal power is sensitive to both the variable cost of fuel and the capital investment required.
FM Logistic have announced plans to invest $150m over the next five years in its own warehouses and distribution centres in India.
As part of the investment, the company will start operating a multi-client facility in Delhi National Capital Region in April 2019 and expand its multi-client warehouse in Mumbai. FM Logistic has also acquired 31 acres of land in Jhajjar, near Gurugram, to build a new warehouse. Once set up, the facility designed by FM Logistic’s sister company, NG Concept, will provide 70,000 sq m (750,000 sq ft) of warehousing space for up to 100,000 pallets. In addition to increasing its warehousing and transport capacity in India, FM Logistic is investing in a new warehouse management system and transport management system to provide its customers with more visibility over their shipments.
The investment is partly motivated by the growth potential in logistics offered by the indirect tax reform (Goods and Services Tax, or GST) implemented by the Indian authorities.
Jean Christophe Machet, CEO, FM Logistic said: “We see a huge potential in the Indian market, following the acquisition of Pune-based Spear Logistics in 2016. The GST reform has already enabled us to streamline and optimise the efficiency of our operations. We expect a strong double-digit growth in India in FY 2019-20.”
Some States seek changes in definition, freedom to fix ceiling for levying taxes
The GST Council is likely to consider changing the definition of ‘affordable housing’ for the purpose of levying indirect tax. A full-fledged meeting of the Council will take place after the formation of the new Government at the Centre and in some States after the elections.
A senior government official said States such as Maharashtra, Gujarat and Delhi sought changes in the definition of affordable houses. The issue was raised during the GST Council meeting on Tuesday but could not be considered due to the Model Code of Conduct in place. “The Council could take up this matter in its meeting post election,” he said while adding that the States could be allowed to fix the ceiling for taxability.
The GST Council, in its meeting on February 24, redefined affordable house as a house/flat of carpet area up to 90 sq metres (sq m) in non-metropolitan cities/towns, and 60 sq m in metropolitan cities having value up to ₹45 lakh (for both). Metropolitan cities include Bengaluru, Chennai, Delhi-NCR (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region). Both the conditions need to be fulfilled for the affordable home tag. From April 1, such a home would attract GST at the rate of one per cent but without input tax credit.
The Maharashtra Government wants the ceiling to be ₹60-70 lakh or even ₹75 lakh as it believes this is the ‘realistic’ price level, especially in and around Mumbai. Gujarat also supported the suggestion. Similarly, some States favoured freedom to fix the ceiling rather than having a uniform ceiling as the cost varies from State to State. The official said all the options will be considered in the next meeting of the GST Council.
As of now, there are multiple definitions of affordable housing. In July 2014, the RBI defined affordable housing loans as eligible under priority sector lending, as also housing loans to individuals up to ₹50 lakh for houses of values up to ₹65 lakh located in the six metropolitan centres (Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad) and ₹40 lakh for houses of values up to ₹50 lakh in other centres for purchase/construction of dwelling unit per family.
Similarly, the Ministry of Housing and Urban Affairs defines affordable housing on the basis of carpet area which could be between 30 sq m and 200 sq m. These dwelling units can be part of schemes such as the Jawaharlal Nehru National Urban Renewal Mission, Rajiv Awas Yojana, Pradhan Mantri Awas Yojana or any other housing scheme of a State government or even by a project developed by private developers. Till March 31, such units will attract GST at the effective rate of 8 per cent with input tax credit.
Depending on the quantum of green energy being generated by solar and wind plants and to make thermal power stations more flexible to accommodate renewable energy, tariffs of coal-based electricity may be raised by as much as Rs 0.45/unit.