INVESTORS PLEASE LISTEN !: NHAI Releases Road Construction Contracts, Beneficiaries Are The Usual Names

Wednesday, December 3, 2008

NHAI Releases Road Construction Contracts, Beneficiaries Are The Usual Names

NHAI project releases Road Construction Contracts, more to be released by March 2009...credit squeeze, execution challenges remain.

Key Beneficiaries: L&T, Reliance Infra

16 projects left with less than 5 bidders each, indicating lower interest from bidders; No project awards till October 2008:

NHAI has commenced the process of bid evaluation and award for 53 projects, under NHDP Phase III and Phase V. Initial bids for 27 projects that were targeted to be awarded by November 2008 have been delayed, given the bid withdrawals post clause 2.1.18 of RPF which restricts the number of bidders and the tightening credit
scenario.
Please Refer Annexure A for complete list of bidders for 27 projects and Annexure B for clause 2.1.18 of RFP.

Of the 27 highway stretches for which initial bids have been received and evaluated, 16 projects are left with less than five bidders each, while for 2 projects there are no bidders. In a significant relaxation, NHAI has stated that restrictions imposed by clause 2.1.18 will not be applicable for new offers made, in case the number of short listed bidders is less than 5.

L&T, Reliance Infra, Maytas - NCC at the forefront, in terms of short-listings:
Based on the initial short listing by NHAI for bid submission at RFP stage, consortiums with highest pre-qualifications include Maytas-NCC (total length 2,231kms, total project cost Rs192b), HCC (2,148 kms, Rs73b), Reliance Infra (1,936 kms, Rs80b), L&T
(1,726kms, Rs162b), GVK (1,319 kms, Rs174b), GMR Infra (926 kms, Rs98b) etc.

Of the initial 27 projects taken up for bid evaluation, HCC and Maytas - NCC consortiums had been shortlisted for 21 projects each. Post withdrawals,

shortlisted consortiums in the fray for submitting financial bids are Maytas-NCC (1,022 kms), Reliance Infra (1,017 kms), L&T (851 kms), HCC (700 kms), GVK (382 kms), and GMR Infra (314 kms).

Credit squeeze delaying financial closures:
Several developers are facing challenges in terms of financial closure for road projects, given tightening credit scenario. For instance, financial closure of five road projects awarded under NHDP Phase V during January 2008, have been delayed. We also understand that for projects under construction phase, sanction terms are being revised, leading to construction delays.

Tight credit scenario, execution challenges, etc have impacted project returns:
Given the current tight credit scenario, increased interest rates and execution constraints, RoE's for road projects have been impacted. We believe companies with robust cash flow profile like L&T, Reliance Infrastructure and IRB Infra are relatively better positioned to address the financing issues.

Further, most of the projects in the existing portfolio have already achieved financial

closure.. Companies with large road BOT portfolios include IRB (782 kms, Not Rated), L&T (400 kms, Neutral), GMR (346 kms, Neutral), Gammon Infra (217 kms, Not Rated), Reliance Infra (197 kms, Buy), etc.