Highway builders choose hybrid annuities for financial health
July 16, 2016
The hybrid annuity model introduced by the National Highways Authority of India (NHAI) for road projects is becoming popular among construction companies as it reduces the dependence on borrowings.
NHAI plans to award 6,631 km length of roads projects in FY17 worth Rs. 85,000 crore. Nearly half of them are expected to be in the hybrid mode while the remaining will use the Engineering, Procurement and Construction (EPC) and Build Operate Transfer (BOT) models.
Under the hybrid model, 40 per cent of the project cost is borne by the government and the remaining by the developer, which is quite economical as it does not stretch the balance sheet. A senior analyst with a mutual fund house on the condition of anonymity said, “Developers would not have to shell out higher equity. For a road project worth Rs 5,000 crore, after deducting the government funding of 40 per cent, and considering 80:20 debt to equity funding ratio for the remaining 60 per cent portion, a developer shells out just Rs 600 crore worth of equity.”
A road project gives revenue visibility of 22 ½ years and with lower funding in case of hybrid projects. Therefore, the number of bidders for hybrid projects has increased to 710 per project on an average in May and June from 23 in March and April.
Among mid-sized road developers, Sadbhav Engineering, PNC Infratech, KNR Constructions and ITD Cementation are expected to be awarded a number of projects under this scheme.