Investors looking to buy highway concessions in India are renegotiating deals following a recent ruling by the country’s roads authority that impacts annual toll revenue, sources familiar told Infralogic.

The Delhi High Court last month directed the National Highways Authority of India (NHAI) to hold consultations with toll road concessionaires to arrive at a final decision on the ruling after an industry body challenged its 13 September circular at the Delhi High Court.

At a hearing on 17 October, the court directed the NHAI to put the circular in abeyance pending consultations.

As the outcome of the discussions with the NHAI remains uncertain, potential bidders engaged in ongoing deals are asking sellers to either indemnify them against a scenario where the final ruling adversely impacts their annual toll revenue, or agree to deferred payments, sources said.

NHAI’s latest ruling directed concessionaires to use a revised linking factor of 1.561 to determine annual toll rate increases, compared to 1.641 that it had specified in 2018.

The linking factor is used to convert wholesale price index data between different base years and is essential to ensure continuity in applying the index to contracts and projects.

The NHAI’s revision, if implemented, would have meant a 3%-5% reduction in the base toll rates, affecting equity returns of toll road concessions by 100 basis points, S&P Global’s India arm CRISIL Ratings said in a mid-October note.

There are at least two ongoing portfolio deals in the market.

One of these is for five toll roads that La Caisse-backed Maple Highways is acquiring from local builder Ashoka Buildcon.

The developer informed the stock exchange on 3 October that it had extended the date to conclude the deal to 20 November from 30 September.

Another portfolio deal is by Macquarie for nine toll roads for which it is evaluating initial offers, this news service reported on 7 October.

There are also sponsors of roads infrastructure trusts that are seeking public listings on the country’s stock exchanges. These include KKR’s Vertis Infrastructure Trust and IFC, Hong Kong Monetary Authority, and Asian Infrastructure Investment Bank-backed Oriental Infra Trust.

The NHAI is also evaluating a USD 1bn bid by India’s IRB Infrastructure Developers for a 333km highway concession for which it opened proposals on 29 October. The NHAI’s latest ruling applies to this project as well, the sources said.

Gahan Singh, a partner at law firm Khaitan & Co, termed the NHAI’s ruling a surprising one.

“Any change that affects existing contracts – particularly adjustments to calculations impacting receivables – would require stakeholder consensus before implementation,” he said.

“If the circular were to say that any projects awarded now onward needs to follow a new rule, it would be understandable. However, the problem we are faced with is that existing projects that were awarded far before the NHAI came up with this circular are also being subjected to the same regime.”