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ShareNew Delhi: With the objective of strengthening special purpose vehicles (SPVs), which are implementing highway projects, the National Highways Authority of India (NHAI) has proposed relaxations in debt raising norms, foreign direct investment and dividend distribution tax.
The NHAI has given its wish list to the B K Chaturvedi committee. The Prime Minister-appointedcommittee, headed by Planning Commission member B K Chaturvedi, is in the process of compiling its second set of recommendations to expedite highway construction in the country.
Confirming the proposal, asenior NHAI official said, "We have sought that SPVs implementing road projects be exempt frompaying dividend distribution tax. The SPV pays tax on dividend outgo to the holding company or theparent company. While this dents the financial capability of the SPV, it also increases the cost of the project."
Earlier, a road SPV used to pay dividend distribution tax twice -- on dividends to the holding company and also on outgo to the parent company. However, last year SPVs were exempt from paying tax on outgo to one party as per their choice. "Now, we have proposed that dividend outgo should not be taxed at all," the official said.
Reacting to the move, Rajesh Samson, partner (transaction advisory), Ernst &Young, said the move will definitely benefit the road sector. "Projects in every segment of infrastructure are implemented through SPVs and this problem is unique to the sector. So addressing this issue is a step in the right direction," the official said.
Among the other proposals is relaxation of debt raising norms, FDI regime, and reserve provision for the SPVs. "Holding companies arrange for debt for the projects and the SPVs are supposed to raise debt. However, it is difficult for an SPV to raise debt as it is an unknown entity," said the official.
"On a practical level, when it comes to bonds, which are taken by Life Insurance Corporation and other financial institutions, they look for credit rating and dividend track record, which an SPV cannot have. So we have proposed structuring of credit enhancement from the parent body," said the official.
Even as 100% FDI is allowed for the road projects, the investment can be made only through the holding company and not through the SPV. "There should be automatic approval because the asset created is very open and there is no security issue as such," said the official.
The NHAI has also proposed certain amendments in the provision regarding road SPVs in Companies Act. "As per the act, it is mandatory to keep aside 2.5-10% of the distributable income as reserves. This is possible in case of companies which are a going concern. But in case of an SPV, which exists for 10-20 years, this leads to a cash trap.
So, there is no need for reserves to be maintained by SPV," said the official.
