S&P sees stable outlook

S&P Global Ratings affirmed its ‘BBB-‘ long-term issuer credit rating on National Highways Authority of India (NHAI). The outlook on the rating is stable.

The rating agency also affirmed ‘A-3’short-term issuer credit rating on the entity.

The stable outlook on NHAI mirrors the outlook on the sovereign credit rating on India (unsolicited rating BBB-/Stable/A-3). It also reflects expectation that the company’s critical role and integral link to the government will remain unchanged over the next 24 months.

“We could upgrade NHAI if we raise the rating on India. We could downgrade NHAI if we lower the rating on the sovereign,” said S&P on 30 Oct 2019.

The rating on NHAI may also face downward pressure if the entity’s government role or link diminishes. This could happen if there is a material dilution of government ownership or a sharp change in the government’s policy focus such that it no longer prioritizes highway infrastructure development.
The rating affirmation reflects expectation that the likelihood of support to NHAI from the government of India is almost certain, given the company’s critical role and integral link. The ratings on NHAI mirror the sovereign credit ratings on India.

“We do not assess NHAI’s stand-alone credit profile, since we do not believe the likelihood of government support is subject to any transition risk. NHAI executes strategic governmental policies and is a non-severable arm of the government of India.”
NHAI is a statutory authority acting under the Ministry of Road Transport and Highways (MoRTH). NHAI is responsible for the development, maintenance, and management of the national highways entrusted to it by the central government.

It is also the prime implementing agency of the government’s flagship Bharatmala Pariyojana project. Bharatmala is the largest road infrastructure project in India’s history. It will be completed in phases, involving the expansion of current national highways and the construction of new expressways and highways.

The massive project has subsumed all existing highway projects, including its predecessor National Highways Development Programme.

NHAI does not generate significant revenues and relies on fuel tax transfers from the central government, market borrowings, and central budgetary support to fulfil its mandate. Of the total vehicle fuel tax nationally, 39% is allocated to the construction of national highways and expressways and NHAI receives the most significant share.

“We believe the recent amendment in the Central Road Fund bill will not change NHAI’s critical role, and the entity will continue to receive a large share of the funds for highway development,” said S&P.

Toll receipts generated on India’s highways are collected and transferred to the government’s Consolidated Fund of India, and then granted back to NHAI and its contractors. This scheme is referred to as the toll plough back. The fuel tax fund and toll plough back mechanism between the MoRTH and NHAI are designed to ensure that NHAI receives funds to carry out its mandate and service its debt repayments, highlighting the crucial relationship between the entity and the government.

The ratings on NHAI benefit from an established track record of support that the company receives from the government of India in several forms. These include ongoing budgetary support, capital infusions, and guarantees on its borrowings from multilateral institutions.

In 2018-2019, the government allocated Rs.373 billion (about US$5.3 billion) in budgetary support for NHAI, which was much higher than the initial budgeted amount, as the government continues to accelerate highway development. The 2019-2020 budget with budgetary support of Rs.367 billion reflects the government’s continued commitment to expand NHAI’s scale and scope of operations. fiinews.com