The Cabinet Committee on Economic Affairs (“CCEA”), chaired by the Prime Minister Narendra Modi, had, on May 13, 2015, permitted 100% (hundred percent) equity divestment for all build, operate and transfer (“BOT”) projects, after 2 (two) years of completion of construction (“Exit Guidelines”). The Exit Guidelines make the exit provisions in the Model Concession Agreement (applicable to projects awarded post 2009) (“MCA”), read along with the change of ownership provisions of the MCA, applicable to BOT (Toll) or BOT (Annuity) projects awarded until September 30, 2009 as well. The Exit Guidelines are also applicable to BOT (Toll) or BOT (Annuity) projects where provisional commercial operation date / commercial operation date have been granted. One of the conditions of the Exit Guidelines was that apart from obtaining requisite approvals from the lenders and National Highways Authority of India (“NHAI”), the proceeds from sale of the divested equity shall be reinvested / ploughed back into incomplete NHAI projects in the road sector, details of which were required to be provided by the concessionaire at the time of making the application. Since the Exit Guidelines provided a very limited window for exit to promoters that have no incomplete NHAI road projects, the CCEA revised the Exit Guidelines to clarify that the proceeds from sale of the divested equity can be used by the concessionaire(s)/developer(s) for one or more of the following:
- to reinvest in incomplete NHAI projects;
- to reinvest in any other highway projects;
- any other power sector projects; and
- to retire their debt to financial institutions in any other infrastructure projects.
This relaxation in the Exit Guidelines is a welcome change as it will give a much required impetus to the infrastructure projects and companies which can monetise their completed road assets and reduce the debt on their balance sheet or invest the sale proceeds in other projects. CCEA’s proactive revisions to the Exit Guidelines based on market reaction and feedback will help concessionaires and developers to unlock their investment in road projects and utilize the same for other infrastructure projects which require funding. CCEA’s proactive actions may prove beneficial not just for the infrastructure sector in terms of quicker implementation and completion of projects but also for the macro economy in terms of attracting more foreign investment in the sector.