NHAI's asset monetization strategy for roads is impressive but implementation is key

Mint

3 days ago

In just over a decade, India's national highway network has doubled to 146,000km, connecting almost every corner of the country. Since capital expenditure by the government on infrastructure such as roads has an income multiplier effect of up to four times, the construction of national highways has multifold social and economic benefits for the country.
Given the increasing need for funds to sustain project growth, the National Highways Authority of India (NHAI) has adopted several asset monetization strategies that leverage existing roads to generate funds. Asset monetization refers to the unlocking of value from existing infrastructure assets by transferring their operational rights to private entities for a specified duration.
This strategy represents a paradigm shift from traditional financing models and creates a virtuous cycle of development, stabilization and monetization of public assets by attracting private investments. NHAI has raised about ₹1.4 trillion through three modes of asset monetization: Toll-operate-transfer (TOT), an infrastructure investment trust (InvIT) and securitization.
For this, it has been able to tap the vast and growing pool of long-term capital available with foreign sovereign wealth funds, pension funds and insurance companies. It has also drawn back into the infrastructure sector domestic investors whose confidence had been shaken by the 2018 IL&FS meltdown.
The monetization of operational roads started with the first TOT bundle in 2018, when developers were shying away from build-operate-transfer (BOT) model projects and banks had stopped financing roads. This was followed by the launch of its InvIT in 2021, National Highways Infra Trust (NHIT), to tap alternative pools of capital that did not have the know-how of investing in companies interested in TOT projects.
Till date, NHAI has monetized 2,564km of roads through TOT and raised ₹48,995 crore. Through NHIT, it has monetized 2,345km of roads and realized funds of ₹43,638 crore while holding an additional non-monetized stake of about 10% in NHIT. Also, ₹46,847 crore has been raised through securitization of the Delhi-Mumbai Expressway project.
The success of NHIT has been spectacular, as it has raised funds almost equivalent to the amount from TOT projects from a diverse set of investors in less time. Its credibility has been further strengthened by its ability to raise funds at scale, with the last round of ₹17,738 crore being the largest ever for India's roads sector.
For the further growth of asset monetization, NHAI recently released a paper on India's 'Asset Monetisation Strategy for the Roads Sector.' This 25-page paper is concise, reflecting the clarity of its objectives and messaging.
The paper sets out three key pillars: value maximization, transparency and market development.
With respect to the maximization of value, NHAI has stated the criteria for identification of monetizable assets while putting in place robust processes for technical and financial evaluation, transparent disclosure of assumptions guiding future cash flows, and for the valuation of bundles.
To ensure transparency, NHAI will work towards the standardization of processes and dissemination of technical documents as well as other relevant information for investors. For the development of this market, it will take steps to support the expansion of the investor base and enhance stakeholder engagement. NHAI's plans include a publicly-listed InvIT and the use of different bundle sizes to attract a diverse set of bidders.
Another notable point in this paper is its acknowledgement of the private sector's ability to ensure higher standards of project management and the use of newer technologies in the operation and maintenance of roads. As road assets are leased to private players for defined concession periods, they are expected to give road users a superior experience on the whole.
One point that can be expected to generate debate is the proposed launch of a public-listed InvIT even though the existing NHIT has already established an excellent track record and has been performing well. Beyond the broad objective of market development, the paper does not elaborate on the advantages that might accrue from the launch of another InvIT.
Since NHIT is one of the most successful experiments in the Indian public-private partnership space, with private capital (domestic and foreign) having invested heavily in a government-sponsored InvIT, NHAI is expected to address this issue and take the concerns of all stakeholders on board.
The execution of the strategy outlined by the NHAI paper will be critical, especially since the authority's DNA is that of a highway development organization.
Management of the issues and concerns of financial investors related to the operation of roads in India requires an approach distinct from the management of contractors and other similar parties that NHAI is more used to. A dedicated asset monetization cell with adequate authority, separation of powers and the ability to build a distinct culture of its own will go a long way in ensuring the success of the country's asset monetization strategy.
The author is an infrastructure professional.