NHAI’s burgeoning DEBT is getting into focus of markets, PMO (Prime Minister Office) and CAG (Comptroller and Auditor General) . An audit has been sought by CAG on the grounds that the land acquisition costs have been very high off late.

Over last 5 years, NHAI’s debt to capital ratio was worsened from 0.3 to 0.9. This has happened due to explosive borrowings by NHAI. The company balance sheet shows explosion in recent borrowings, as per the chart below:

ICRA.in has given a brief on NHAI financial health, as per the chart below.

NHAI Financial Indicators

As per KIE(Kotak Institutional Equities), NHAI has revenue proceeds from completed project at the rate of 7.2% in 2017 and 6.2% in 2018. In comparison, the cost of borrowing in 2018 was 7.3%. This under performance in generation of revenue creates a situation wherein it becomes difficult to service rising DEBT.

One of the main reasons behind increased borrowing is the increasing land acquisition costs. The costs of land acquisitions has shot up by 40% over last 5 years.  Also, the change of model from BOT (Build – Operate – Transfer) to TOT (Toll – Operate – Transfer) & HAM (Hybrid Annuity Model) can be held responsible here.  BOT requires private capex, wheres TOT and HAM requires all outlay from NHAI.

Moneylife.in reports – “Meanwhile, NHAI’s gigantic debt, contingent liabilities, stalled projects and web of litigation across the country, are turning into the biggest roadblock to infrastructure development. Union minister Nitin Gadkari has ignored this for five years, even as he criss-crossed the country announcing mega projects with massive outlays. Reports that the prime minister’s office (PMO) has rapped the ministry for extensive and ‘reckless’ highway expansion, finally, led to a much-needed public discussion last week. NHAI has reportedly been asked to discontinue construction of roads and monetise assets; this has happened only after NHAI’s debt soared from Rs40,000 crore in 2014 to an unsustainable Rs1.78 lakh crore in 2019 under Mr Gadkari’s watch.”

The debt papers from NHAI are rated AAA by ICRA. Although, it states the following as a word of caution –

Going forward, support from the GoI (both financially and operationally) would be crucial for maintaining the credit profile of NHAI and would remain a key rating sensitivity. NHAI’s ability to monetise assets through TOT and reduce dependence on external borrowings would also be a key monitorable.

ICRA also states that dependence on debt will further rise, primarily on account of Bharatmala Pariyojana, which requires and outlay of Rs 5,35,000 crores in phase one. Secondly, there are nearly Rs 55,000 worth contingent liabilities (on account of litigation filed by developers & contractors).

With the current state of affairs, we conclude that the current NHAI debt crises needs to be urgently addressed. Else, it has the potential to further slowdown the infrastructure growth in India. As a way out, NHAI will have to monetise the assets by way of InvITs or TOT auctions.


By Abhay Gupta

With background in e-commerce and IT, Abhay manages operations and backend processes at SAKSHAM Wealth. He is a data cruncher and his expertise with MS Excel helps the team in research.

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