NHAI Achieves Record-Breaking Rs 16,000 Crore Through Third InvIT Round

NHAI’s Mega Fundraise via InvIT

The National Highways Authority of India (NHAI) successfully concluded the largest ever monetization exercise in the Indian road sector by raising a massive Rs 16,000 crore through its National Highways Infra Trust (NHIT) in the third round. This accomplishment marks a significant milestone for the NHIT, established in 2021 to support the Government of India’s National Monetization Pipeline.

The InvIT mechanism functions similarly to a mutual fund, pooling capital from investors to invest in assets that generate steady cash flow over time. In this instance, the assets are operational national highway stretches. The NHIT’s attractive proposition lured marquee domestic and international investors, along with prominent Indian entities like pension funds, insurance companies, and mutual funds. Notably, foreign pension funds, including the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan Board, subscribed to the maximum permissible limit of 25% each. This robust investor participation reflects strong confidence in the Indian road sector’s potential and the NHIT’s operational model.

Funding Details and Project Scope

The Rs 16,000 crore raised by NHIT will be used to acquire 889 kilometres of operational national highways across India. The funding structure involves a combination of equity and debt. NHIT garnered Rs 7,272 crore as unit capital from investors and Rs 9,000 crore as debt from Indian lenders. The base concession fee for the acquired highway stretches stands at approximately Rs 15,625 crore, with an additional Rs 75 crore in concessional fees. The units were competitively priced at Rs 124.14 per unit, exceeding the current Net Asset Value (NAV) of Rs 122.86 per unit.

Boosting NHAI’s Monetization Efforts

This triumphant InvIT round by NHAI marks the culmination of its efforts in the third monetization round. With this achievement, the total realized value across all three InvIT rounds climbs to a staggering Rs 26,125 crore. This translates to a diversified portfolio encompassing 15 operational toll roads spanning over 1,525 kilometres across nine Indian states. The concession periods for these projects range between 20 and 30 years, ensuring a steady stream of revenue for NHIT and its investors.

Infrastructure Sector Outlook: A Mixed Picture

While the NHAI’s accomplishment is a positive development for the road sector, the broader infrastructure industry has witnessed a slowdown in project awarding activities during the first nine months of FY24 (April-December 2023). This slowdown can be attributed to stricter government policy guidelines, which mandate securing all clearances before project awards can proceed. Additionally, new projects now require cabinet approval due to cost overruns experienced in Bharatmala Phase 1, a large-scale national highways development program.

Despite the temporary slowdown, the construction sector is expected to maintain its buoyancy in the long run. This optimism stems from several factors, including ongoing government initiatives like Bharatmala Pariyojana (highway development program), Sagarmala (port development program), AMRUT (urban transformation mission), Jal Jeevan Mission (rural water supply program), and the PM Gati Shakti National Master Plan for infrastructure development. The government’s commitment to consistent infrastructure spending further bolsters this positive outlook.

A Look Ahead: Increased Investment and Growth

The recent Union Budget for FY25 (2024-2025) allocated a significantly increased capital outlay of Rs 11 lakh crore, representing an 11.1% year-on-year rise. Notably, a substantial portion of this outlay, Rs 2.8 lakh crore and Rs 2.6 lakh crore, has been earmarked for road and railway development, respectively. The Ministry of Road Transport and Highways (MoRTH) has set an ambitious target of awarding 5,200 kilometres of BOT (Build-Operate-Transfer) toll projects in FY25 based on revised concession agreements. Furthermore, MoRTH plans to award contracts for 14 new expressways spanning 2,279 kilometres, with an estimated investment of Rs 1.3 lakh crore.

Land acquisition challenges continue to pose hurdles, leading to delays in awarding activities. During the April-November 2023 period, awarded projects stood at only 2,815 kilometres compared to 5,382 kilometres awarded in the same period of the previous year. Despite this temporary setback, MoRTH remains optimistic about achieving its target of awarding 10,000 kilometres of projects in FY24.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.