NHAI: Is it a Going concern?

NHAI has been issuing tax-free NCDs and Capital gain bonds (54 EC).

Just how safe is your money investing in these bonds?

The Comptroller and Auditor General (CAG) report for the year 2014-15 mentions:

“The Balance Sheet and Profit and Loss Account dealt with by this report have not been

drawn up in the format approved by the Government of India under Section 34(2)(g) of

NHAI Act, 1988 and Rule 6(1)(b) of NHAI Rules 1990.”

“We have serious reservations regarding the maintenance of proper books of accounts and other relevant records by the Authority …”

“Overstatement of fixed assets- capital works in progress by NHAI has resulted in overstatement of Fixed assets – CWIP by Rs. 1,40,797 crores and understatement of loss for the year to the same extent.”

NHAI discloses loss for the year 2014-15 of Rs. 198 crores. If the above were to be given effect to, the loss would shoot up drastically to Rs. 1,40,995 crores. Enough to wipe out the capital and questioning the going concern basis.

Bond Investors generally rely on certain safety measures such as the Interest coverage ratios, Net Income ratios, Debt-Equity ratios, etc. Here the authenticity of the books of accounts itself is under serious question. So it is unclear what safety, if any, is afforded to the bond investors.

NHAI Rules require NHAI to set aside certain reserves each year to provide for redemption of bonds. However, the CAG report mentions no reserve funds have been created for 54EC Bonds, NCDs and loan from ADB.

Despite such adverse financial conditions rating agencies such as CRISIL had no qualms whatsoever in giving the highest rating. The role of rating agencies is already under the scanner in case of Amtek and Ricoh.

It is a matter of grave concern why the Finance Ministry and the Department of Revenue continue to provide Section 54 EC and tax-free exemption and not take sufficient steps to protect small investors.