Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strategic importance to GOI: NHAI, constituted by an act of Parliament, is the nodal agency for implementing the road programmes for the government. GoI has statutory and regulatory powers over NHAI and supports it in major policy decisions. GoI has identified road sector reforms as a key area for removing infrastructure bottlenecks and provide momentum to the economic growth. NHAI is thereby entrusted with implementation of the Bharatmala programme which aims to construct 34,800-km of roads out of which a large part has already been awarded and constructed. National Highway Development Project (NHDP), worth over Rs 2,47,000 crore, which was helmed by NHAI was one of the largest infrastructure projects in the country which has been merged with Bharatmala programme.
Strong financial flexibility, driven by continued support from GoI: NHAI has strong financial flexibility, predominantly because of continuous support from GoI for its projects, by way of allocation of cess funds and budgetary resources, as well as flexibility to raise funds through capital gains bonds and tax-free infrastructure bonds.

Apart from cess funds, NHAI also receives additional budgetary support for the development of national highways, and grants and loans for execution of externally aided projects. NHAI has not raised any borrowing funds since October 2022 with the last raise of Rs 798 crore (against the proposed amount of Rs 6,000 crore) in September 2022. There has been a marginal growth in budgetary allocation for NHAI from Rs 1.69 lakh crore for fiscal 2025 to Rs 1.70 lakh crore for fiscal 2026. The funds provided by GoI are used for servicing debt and meeting capital and operational expenses. NHAI also receives project revenues i.e. ploughing back of funds from toll collection, negative grant, and revenue sharing. Stability in budgetary support for meeting expenses will remain a key rating sensitivity factor.

NHAI also has options to raise funds though monetizing its operational assets. Through the toll-operate-toll (TOT) model, NHAI has raised around Rs 49,000 crore till September 2024. NHAI has also raised funds through Infrastructure Investment Trust (InvIT) route in December 2021, October 2022 and March 2024 and the fourth tranche is expected to be concluded in March 2025. These monetisation avenues have reduced dependence on borrowings. Further, through securitization, NHAI has raised over Rs 42,000 crore till fiscal 2024 and is likely to raise around Rs 9,000 crore in fiscal 2025. NHAI will continue to monetize through these routes in the medium term as well.

NHAI is one of the four bodies authorized to float bonds that qualify for capital gains tax exemption under Section 54 EC of the Income Tax Act, 1961. Furthermore, NHAI raised masala bonds in the international market in fiscal 2018 at a competitive coupon rate of around 7.3%, indicating that the entity is perceived to be a critical arm of GOI.

Weakness:

Sizeable indebtedness: NHAI’s expenditure has grown at a compound annual growth rate (CAGR) of ~16% for last five years ending fiscal 2025 as estimated. The budgetary allocation by the government and monetization proceeds through TOT, InvIT and securitization will continue to fund the increasing expenditure in the medium term.

NHAI has prepaid debt of ~Rs 56,000 crore in the fiscal 2025 till date and the debt (including debt at DME) stood at ~Rs 3.00 lakh crore as on January 31, 2024 from Rs 3.76 lakh crore as on March 31, 2024. While debt level still remains sizeable, dependence on debt is expected to be negligible going forward given continued budgetary allocation as well as instructions by GOI not to raise funds through internal and extra-budgetary resources (IEBR) since fiscal 2023. Further, NHAI formed an InvIT in October 2020 and as per approval of the Cabinet, the funds raised through InvIT are to be exclusively used for debt servicing of NHAI; assets worth Rs 26,000 crore have been monetised to the InvIT till March 2024. NHAI will continue to enjoy healthy financial flexibility on account of support from the GoI in the form of cess allocation and additional budgetary support and timely infusion of funds by GoI for meeting debt servicing will remain a key rating sensitivity factor.

Apart from high debt, NHAI has sizeable contingent liabilities, most of which are from disputed claims filed by contractors/developers. The final quantum and timing of the settlement of these claims could have a bearing on NHAI’s cash flows and would remain a key monitorable.