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<p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">In a move that would allow road developers to free up capital and speed up execution of delayed projects, the road ministry is set to modify its exit policy and make it easier for new investors to enter and replace existing ones.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">If the proposal kick-starts road projects, it would resume cash flows to these projects and also unlock bad loans owed by financial institutions.&nbsp;</span></span></span><span style="color:rgb(105, 105, 105); font-family:arial; font-size:11px; line-height:1.6em">Accordingly, the ministry has tweaked the policy it formed last year and allowed concessionaires to divest their stake in the road projects without necessarily forming new special purpose vehicles (SPVs). Earlier policy permitted a promoter an early exit provided all promoters agreed to offload their stakes and form a fresh SPV with a new composition of promoters.</span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">Doing away with the requirement of forming a new SPV would mean that lenders of the project will not have to carry out fresh due diligence and that the project will not need fresh clearances like environment and forest clearances. In addition, the substituting developer will also be entitled to the same tax exemptions. &ldquo;Finance ministry has approved the changes we proposed in the exit policy, and we will soon notify these after internal approvals,&rdquo; said a road ministry official who requested anonymity.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">The government had approved a new exit policy for highway projects in June 2013 that relaxed the exit norms by allowing concessionaires to exit both ongoing and completed highway projects.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">Earlier, a concessionaire could exit only two years after the start of commercial operations for contracts awarded after 2009. For projects awarded before 2009, a complete exit was not allowed. A concessionaire could sell 74% equity after the date of start of commercial operations, but had to hold 26% in the project until the end of the concession period.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">The policy was criticized for being ineffective.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">R.P. Singh, chairman, National Highways Authority of India (NHAI), had written to Vijay Chhibber, secretary, ministry of road transport and highways, in August 2013, demanding a re-look at the policy which he called &ldquo;sub-optimal&rdquo;, Mint reported on 15 August.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">The National Highways Builders Federation (NHBF), a lobby of road developers, had also said that the substitution circular presents a large number of legal, commercial and taxation challenges that investors and sellers would not be prepared to deal with. &ldquo;Following this, the ministry held consultations with all stakeholders-lenders, lobby groups, developers, lawyers to understand why the policy was not working. After which we proposed changes that we sent for the finance ministry&rsquo;s opinion&rdquo; said the official mentioned above.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">The draft circular now approved by the finance ministry says, &ldquo;In view of the difficulties being faced by concessionaires in public-private partnership (PPP projects), government has decided to permit the substitution of existing concessionaires or the selected bidder/consortium members of such project SPV, in a harmonious manner.&rdquo;</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">According to the draft, the substitution process will be subject to lenders&rsquo; and NHAI&rsquo;s approval. The concessionaire substituting during the construction period will be required to have similar technical and construction capabilities as the outgoing concessionaire. For completed projects, the substituting entity should have adequate experience of operating and maintaining road projects by itself or through its associates or subsidiaries.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">Parvesh Minocha, managing director of the transportation business at infrastructure consultancy Feedback Infrastructure Services Pvt. Ltd, said, &ldquo;Now that procedural simplicity has come in, real investors, both domestic and international would be encouraged. One, however, hopes that due to prolonged troubles in the road sector, investors have not taken a medium or long term negative view of the sector.&rdquo;</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">The proposal to ease the lock-in period for developers was first mooted 18 months ago and was expected to free up capital for investment in new projects. It was also expected to revive projects stuck due to the financial distress of the developer.</span></span></span></p> <p style="text-align:justify"><span style="color:#696969"><span style="font-size:11px"><span style="font-family:arial">Source-On Request</span></span></span></p>