At a time when some institutions have been dithering over lending to the National Highways Authority of India, doubting its financial strength, the agency is in talks with the country's largest lender, State Bank of India, to borrow up to Rs 10,000 crore (Rs 100 billion) at 8-8.5 per cent.
The interest rate for the debt with a tenure of 10 years or more will be 50 basis points higher than the public sector bank's base rate -- the benchmark above which loans are provided.
The yield on the 10-year benchmark government paper -- 7.80 per cent maturing in 2020 -- was at 7.92 per cent on Wednesday.
Though NHAI has in the past got government guarantee to raise funds, it is unclear if the benefit will be available for this debt. The agency enjoys an AAA credit rating.
An official, who did not wish to be identified, said the disbursals would not take place immediately and would be spread over a period. "Banks also have a lot of funds in the highways vertical and we have no funding issues," the official added.
NHAI, which has been given a target of building roads at a pace of 20 km a day, is estimated to borrow over Rs 63,000 crore (Rs 630 billion) between now and March 2015 to fund an investment of nearly Rs 300,000 crore (Rs 3,000 billion).
The borrowing estimate is considering that the highways authority would build 56 per cent of the road on Build, Operate and Transfer (BOT, or toll) basis, while 35 per cent would be on the annuity model and the remaining on Engineering Procurement and Contract (EPC) basis.
In BOT, a developer funds construction and recovers the amount later by way of toll collection. In annuity, a developer builds the road and the government pays it in instalments, depending on the amount of work done. Under EPC, the road developer only has to build roads for the government and the government takes care of the rest.
NHAI was also looking at raising $5 billion (approximately Rs 22,500 crore (Rs 225 billion)) from multilateral agencies like the World Bank and Asian Development Bank by 2015, said another senior official.
Of the $5 billion, NHAI has already started negotiations with the World Bank to raise $2 billion (around Rs 9,000 crore or Rs 90 billion).
This money is to be used to fund annuity and Viability Gap Funding (VGF) projects. The highways authority makes VGF payment of up to 40 per cent in projects under BOT.
