Larsen & Toubro: Two road projects default on loan servicing amid dispute with authorities

Larsen & Toubro: Two road projects default on loan servicing amid dispute with authorities

NEW DELHI (NewsRise) — Larsen & Toubro said two road projects it runs through special purpose vehicles have defaulted on servicing their loans last month, blaming authorities for failing to meet their obligations.

     The defaults underscore the challenges Prime Minister Narendra Modi’s government faces in its push to revamp India’s infrastructure and expand road networks across the country.

     The two projects defaulted on servicing of project loans aggregating 120 million rupees ($1.8 million) as on August 31, 2015, L&T said in a statement to the stock exchanges. “The defaults have occurred primarily out of failure of the respective concession authorities in meeting certain of their obligations,” it said.

     The loans are without recourse to either L&T Infrastructure Development Projects or to parent L&T, the company said.

     L&T’s statement comes after ratings agency ICRA earlier this week downgraded the long-term loan programs of L&T Halol Shamlaji Tollway and L&T Chennai Tada Tollway, citing delays in payments.

     L&T shares were higher in Mumbai trading, tracking a 0.90% rise in the benchmark S&P BSE Sensex index. The stock has fallen 0.81% since the start of the year, outperforming the Sensex, which has fallen about 6.7% in the same period.

     Debts in India’s infrastructure sector have piled up, putting pressure on the nation’s banking system even as Modi’s government unveiled plans to spend $1 trillion on infrastructure in the five years to 2017, with half of the investment from private players.

     Modi plans to build 30 kilometers of roads a day this year as he strives to boost economic growth. To expand the national highways alone, funding of 1.6 trillion rupees will be required over the next three years, according to ICRA.

     L&T Halol Shamlaji Tollway, a special purpose vehicle of L&T Infrastructure Development Projects that carried out a highway project in the western Indian state of Gujarat, delayed scheduled payments on a loan worth 10.15 billion rupees to its lenders in August, ICRA said in a note Monday.

     Lower-than-expected traffic volume on the 173 kilometer highway stretch led to a shortfall in toll collections, prompting the company to push back payments, ICRA said. L&T Chennai Tada delayed debt servicing payments following the dispute with India’s national highways authority, ICRA said, adding the company has served a termination notice to the authority due to land acquisition related issues.

     CRISIL Research, however, reckons recent changes made by the government to so-called ‘model concession’ agreements for awarding projects will provide a regulatory boost to the national highways sector. The changes including back ending of premium payments and the introduction of a clause on termination of projects, will improve the confidence of both developers and lenders in investing in the sector, CRISIL said in a note earlier this month.

     L&T Halol Shamlaji & L&T Chennai Tada are owned by L&T Infrastructure Development Projects, a subsidiary of L&T that runs public-private partnership infrastructure projects.

     L&T Infrastructure Development has a vast road portfolio that spans 17 projects at an estimated cost of 1.87 trillion rupees.  Its other infrastructure assets include the Hyderabad metro rail, a transmission line and a wind energy project.

     L&T Chennai had total liabilities of 4.14 billion rupees at the end of March, while those at L&T Halol stood at 12.51 billion rupees, according to parent L&T’s annual report for the previous fiscal year.

Larsen & Toubro: Two road projects default on loan servicing amid dispute with authorities