Thursday, July 1, 2010

>Emerging Opportunities in Infrastructure (ANANGRAM)

After announcing last year about awarding mega highways projects, the Ministry of roads transport and highways has started the process of site selection for the same. The Mega roads projects are the ones which are approximately of 500 kilometers and are of around Rs 5000 Cr.
Though not of the same size, but one such project was bagged by IVRCL Infra recently valued at around Rs 3100 Cr. Over the last one year (i.e. June 2009 – May 2010) the NHAI has awarded projects with a combined length of 7478 km and plans to award a further 12000 km in FY11. After showing significant improvements during the 1 year of charge, in terms of formulating / modifying policies favorably to faster awarding, the ministry now takes a step ahead.

The government has set a target for constructing 35,000 km of highways in the next five years under the National Highways Development Programme (NHDP), which will require an estimated investment of about USD 60 billion. Out of this, USD 40 billion will come from the private sector.

The National Highways Authority of India (NHAI) has estimated its annual borrowings from the domestic and international market to be more than Rs 4.3 billion for the next 15 years.

While not many construction companies will pre-qualify for such mega projects, we believe that many small construction companies too will be benefitted from these as we expect the actual developers to sub-contract quite a lot of the work to smaller players.

Funding remains challenging – at least as of now
The gross borrowings would be in the region of Rs1,92,000 crore, with a peak at around Rs. 71,500 crore. This is where the major challenge lies.

The RBI has recently rejected priority status to road projects as the priority status is for the borrower like farmers and small and medium industries. The planning commission has recently proposed to set up a $ 11 billion fund to finance infrastructure projects in order to secure ample investments to implement the development plans. The fund will be under a special company which will be owned by banks and financial institutions. The main objective will be to raise long term funds from domestic as well as overseas markets by issuing bonds.

Thus while the government is working on this, it is still on an early stage and may take a while before it materializes.

To read the full report: INDIAN INFRASTRUCTURE