India: Promoter Exit Restrictions On NHAI BOT Projects Eased- Opens Up Investment Opportunities

Last Updated: 23 October 2015
Article by Trilegal .

The Cabinet Committee on Economic Affairs (CCEA) on 13 May 2015 had allowed promoters/concessionaires to divest 100% of their equity in highway projects awarded by the National Highway Authority of India (NHAI) on a Build, Operate and Transfer (BOT) basis. NHAI, while implementing this decision made such divestment conditional on the funds being re-invested in incomplete NHAI projects. In a welcome move, the CCEA, on 26 August 2015, expanded the scope of the sectors into which promoters/concessionaires can re-invest the sale proceeds to not only cover incomplete projects of NHAI, but also other highway and power sector projects and also for retiring debt due to financial institutions in infrastructure projects generally.

One of the key impediments facing the infrastructure sector in India has been the lack of equity in the market, which has been compounded (many times over) due to repressive lock-in restrictions impeding the ability of promoters to churn their equity.

Being fully aware of the funding constraints faced by the infrastructure sector, and more particularly the road sector, the Cabinet Committee on Economic Affairs (CCEA) had on 13 May 2015 allowed promoters/concessionaires to divest 100% of their equity in highway projects awarded by the National Highway Authority of India (NHAI) on a Build, Operate and Transfer (BOT) basis, any time after two years of completion of construction of the project. However, in implementing this decision of the CCEA, the NHAI had made any such divestment conditional on the funds being re-invested in incomplete NHAI projects. As not all concessionaires/promoters had incomplete NHAI projects into which they could re-invest such sale proceeds, this meant that significant equity continued to remain locked in commissioned projects.

In a welcome move, the CCEA, on 26 August 2015, expanded the scope of the sectors into which promoters/concessionaires can re-invest the sale proceeds to not only cover incomplete projects of NHAI, but also other highway and power sector projects and also for retiring debt due to financial institutions in infrastructure projects generally.

This further relaxation in the exit policy should assist cash-strapped promoters/concessionaires to free up much needed equity for re-investment in development of key infrastructure in the country. We hope this is a first step in easing of the lock-in restrictions in all infrastructure sectors generally. It also opens up new investment avenues in matured road assets for resident and non-resident investors alike.

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