New Delhi, Dec 18 Road projects under the hybrid annuity model (HAM) in India, awarded by the Ministry of Road Transport and Highways (MoRTH), are on a steady drive, with more than 90 per cent of the project length under development being constructed on schedule, according to a report on Wednesday.
Such timely execution and comfortable debt protection metrics will support the credit risk profiles of these projects, according to a Crisil Ratings analysis.
Over the past five fiscal years, excluding 2024, about a quarter of the projects awarded by MoRTH were under HAM, underlining the model’s significance in the sector.
Its success can be attributed to provisions such as the requirement of at least 80 per cent right-of-way (ROW) availability before the declaration of appointed date, de-scoping and de-linking of project length where ROW has not been received, and inflation and interest-rate hedging given indexation of cash flows.
“Our experience is that nearly 66 per cent of under-construction project length is expected to be on or before schedule. Another 26 per cent is either delayed marginally or awaiting approval for timeline extension. These extensions are to account for delays that are not attributable to concessionaires, such as non-availability of ROW, or events such as heavy rains, a ban on mining, etc," said Anand Kulkarni, Director, Crisil Ratings.
This leaves only 8 per cent of the project length under construction facing material execution-related challenges, he added.
Once completed, the HAM projects typically witness strong credit profiles due to inherent structural benefits such as timely receipt of steady cash flows from a central counterparty.
"Additionally, comfortable debt coverage metrics of CRISIL rated portfolio, as reflected in an estimated average debt service coverage ratio of 1.3-1.4 times, support the credit risk profiles of these projects," said Saina Kathawala, Associate Director, Crisil Ratings.
While credit risk profiles have remained stable so far, with the increasing popularity of HAM and the relaxation in bidding norms, the number of bidders has more than doubled over the last four fiscal, the report mentioned.
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