Funding snag delays Hyderabad Metro takeover until December

The Telangana government and Larsen & Toubro (L&T) have decided to extend the deadline for completing the transfer of ownership of the 69.2-km Hyderabad Metro Rail (HMR) Phase-I project by another three months, pushing it to December 31, 2026.

This is the third extension granted for finalising the Share Purchase Agreement (SPA) since the State government formally announced its decision in May to acquire 100% equity in L&T Metro Rail Hyderabad (L&TMRH) from L&T. The takeover involves a negotiated equity payment of ₹1,462 crore and the assumption of nearly ₹13,560 crore in debt, which was expected to be serviced through a financial institution.

Following the takeover announcement, the State government constituted a new board for L&TMRH, chaired by the Chief Secretary and comprising senior civic and police officials. The plan was for the government to operate the metro company using the existing workforce and organisational structure until a unified metro rail entity could be established. This was expected to happen alongside the proposed joint venture with the Centre for the expansion of Hyderabad Metro Phase II, said senior officials, pleading anonymity.

However, the plan got grounded when the Indian Railway Finance Corporation (IRFC) rescinded its decision to disburse the loan with most part at a low interest rate of about 4% for unknown reasons. This has forced the State government to halt the equity payment and begin a look out for an alternate financial institution.

After a bit of a blame-game, both the Centre and the State government engaged SBI Caps to identify a financial institution willing to service the debt. But it has been unsuccessful so far with none of the contacted parties or those showing interest in servicing the loan accepting interest rate of less than 7%, according to top officials.

Now, the State government is considering if it is worthwhile to first secure the loan at the interest rate offered to complete the acquisition and explore re-finance options after the HMR phase one becomes a public sector entity. In anycase, the Centre too has indicated that it would like the State government to service the purported loan and not the special purpose vehicle — Hyderabad Metro Rail Limited (HMRL), they said.

Meanwhile, L&T continues to run commercial services of HMR phase one of 69.2 km across the three corridors of Red, Blue and Green lines with its allied partners. The network generates annual revenues of about ₹1,100 crore from passenger fares, advertisements and station rentals, which are used to support operations and debt servicing.