Budgetary Support To Initiate Deleveraging NHAI Balance Sheet: India Ratings

India Ratings and Research (Ind-Ra) opines that the FY23 union budget announcement of almost nil borrowing by National Highways Authority of India (NHAI) could mean that FY23 would be the first year, in more than a decade, when the entity could witness a debt contraction.

"While NHAI has been undertaking massive expansion of highways in India in recent years, it has been majorly funded through heavy market borrowings. As a result, NHAI's debt reached INR3,072 billion in FY21 from INR68 billion in FY11 and further to INR3,329 billion in 1HFY22. Although the debt has been continuously growing, the yoy increase in debt has been witnessing a declining trend since FY16. After growing 82% yoy in FY16, the rate of increase in debt moderated to 23% in FY21. The increase in NHAI's debt has coincided with the entity's focus on execution through award of contracts primarily through fund-intensive modes such as engineering, procurement and construction and the hybrid annuity," IndiaRatings has said.

The yearly annuity payment of Ministry of Road Transport and Highways (MoRTH), which is largely representative of NHAI's annuity liability, also reflects a similar trend. The annuity liability, which had averaged INR62 billion over FY11-FY17, fell to an average of INR46 billion over FY18-FY21. As NHAI's award of fresh projects on the built, operate and transfer (BOT annuity) mode became less relevant post FY17, the yearly annuity liability also started declining. Ind-Ra has estimated the yearly annuity liability on the basis of projects which were operational at FYE21. On the basis of the existing projects, the yearly annuity liability would fall to an average of INR41 billion over FY22-FY26. The actual annuity liability however would be higher as a greater number of projects completed under the hybrid annuity model become operational.