What can be done for distressed infra assets in India?

A selection of members from GRI Club Infra India, consisting of some of the most revered names in the infrastructure industry, met in Mumbai on the 19th September to discuss the pressing issue of stressed assets. The discussion started with a unanimous agreement from all members about the urgent need to address the current state of roads.

 

Indian infrastructure assets are distressed due to these three main reasons: 

• Delay in approvals by governing body like NHAI during construction

• Cash crunch at developer’s end

• Incorrect estimation of asset value based on parameters like population, vehicular traffic

 

This is a systemic problem and won’t be solved overnight. Government’s introduction of setting National Company Law Appellate Tribunal (NCLT) & the new Insolvency & Bankruptcy Codes (IBC) was to achieve time-bound resolution of bad debts. However with the NCLT infrastructure proving woefully inadequate for the multitude amount of cases flooding the system, the implementation of the new initiative clearly is not living up to the expectations. The lack of established legal precedents, which will only get worse with further irregulation, also makes litigation under the IBC framework elaborate and time consuming. 

So what can be done? Members concluded a potential solution would be to add a trigger mechanism in projects to highlight early signs of trouble, so as to rectify the situation before it becomes unmanageable. Another idea put forward was to install a smaller governing body within NHAI to identify and take over stressed assets/assets at 70% debt, the terms of such consolidation would be written into the project's initial terms. These projects would also have an independent committee assessing the projects value, and any realisation above these values would be distributed to the lender of the project. 

The GRI Club members ended the discussion with 4 of them deciding to form a group, which will generate a small white paper on the discussed points and take it to the relevant government agencies to discuss in detail and hopefully bring about some reform. 
 

For more information on the Indian infrastructure market, Infra India GRI 2020 takes place on 19-20 February in New Delhi. 

Article by Matt Harris