Road builders can re-finance debt

The Planning Commission has said developers of road projects are entitled to re-finance their debt and seek longer repayment tenures,and that the National Highways Authority of India (NHAI) should not object to it so long as they pay the project costs. In a letter to the commission,the NHAI had argued that a concessionaire is required …

The Planning Commission has said developers of road projects are entitled to re-finance their debt and seek longer repayment tenures,and that the National Highways Authority of India (NHAI) should not object to it so long as they pay the project costs.

In a letter to the commission,the NHAI had argued that a concessionaire is required to take its permission for amending the financing agreements including re-scheduling or restructuring their debt especially if there is an increase in the liability of the authority.

In a reply,the Plan panel said all financing agreements in the highways projects should be executed in accordance with the provisions of the concession agreements. Under such agreements,a concessionaire can resort to debt instruments like loans,guarantees and subscription to non-convertible debentures or bonds. But the developer would not make any amendments to financing agreements without the prior approval of NHAI if such amendments leads to financial liability on the authority. In turn,the NHAI would not unreasonably withhold its consent for restructuring or re-financing of the debt.

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The commission reasoned that while the NHAI has a say in the concession agreements on the debt due,it will have to appreciate that there is no restriction on the tenure of the debt. It should be recognised that the entire concept of debt due relates to the amount and not to the tenure of the borrowing. The concession agreement gives complete freedom to the concessionaire on tenure of loans,but gives no freedom on the amount of debt due, the commission.

Justifying its contention,the plan panel said re-financing of debt resulting into a longer repayment period is common in the infrastructure sector especially in public private partnership projects. This practice is prevalent in countries like the UK and Australia.