Hyderabad Metro Rail Phase-I takeover, Phase-II expansion hit roadblock as funding search drags on

Nearly a year after the Telangana government signed an agreement with Larsen & Toubro (L&T) to take over Hyderabad Metro Rail (HMR) Phase I, there is little visible progress on either the buyout process or the proposed Phase II expansion.

The 69.2-km HMR Phase I metro network, built under the Public-Private Partnership (PPP) model across three corridors in Hyderabad, was slated for a government takeover through a one-time settlement with L&T. The initial proposal involved payment of ₹2,100 crore towards L&T’s equity investment and assumption of project debt estimated at around ₹13,000 crore. The figures were subsequently revised following due diligence by consultants – IDBI Capital and DMRC International.

The takeover was expected to pave the way for HMR Phase II, a proposed 122.9-km network estimated to cost ₹38,595 crore and planned through a Centre-State joint venture with equal equity participation to expand the existing three corridors network as well as new lines reaching upto Airport, Kokapet, Patancheru, Hayatnagar, Medchal, Shamirpet, etc. However, officials acknowledge that the process has run into significant hurdles, particularly on the funding front.

SBI Caps, entrusted with identifying a financial institution willing to lend around ₹13,500 crore for the takeover, has reportedly been unable to finalise a deal despite approaching several agencies, including institutions in Gujarat’s GIFT City. Top officials familiar with the matter said no lender has so far shown willingness to provide the loan at the low interest rates sought by the government.

SBI Caps was brought into the picture after the Indian Railway Finance Corporation (IRFC) withdrew from a proposed ₹13,527-crore loan arrangement at the last minute, days after signing an agreement with the Telangana government. The decision followed discussions involving Chief Minister A. Revanth Reddy and Union Ministers G. Kishan Reddy, Manohar Lal Khattar and Ashwini Vaishnaw earlier this year.

Since then, there has been little public communication on the project’s status. While Special Chief Secretary for Hyderabad Metropolitan Area, Jayesh Ranjan, is designated as the State’s representative in the process, no significant movement including the appointment of a Centre’s representative to oversee the process was announced.

Official sources said SBI Caps has been holding consultations with Hyderabad Metro Rail Limited (HMRL) and L&T Metro Rail Hyderabad (L&TMRH). Chief Secretary Sanjay Jaju is also understood to have held discussions with key stakeholders in Delhi, Mumbai and Gujarat, though little is known about the way forward.

“Things are moving, but slowly,” a senior official remarked. A key issue remains whether any Indian financial institution would be willing to offer a low-interest loan without explicit support or backing from the Centre. The Centre is reportedly unwilling to sign the proposed joint venture agreement for HMR Phase II until HMR Phase I is brought under a single operating entity. Such a joint venture would enable access to international funding agencies and loans at lower interest rates backed by its sovereign guarantees.

In April, the government announced the signing of a Share Purchase Agreement (SPA) with L&T for acquisition of 100% equity in L&TMRH at an equity value of ₹1,461.47 crore. The company’s debt of ₹13,538.53 crore was proposed to be refinanced with government backing. The Centre has subsequently asked the State government, rather than HMR, to directly service the takeover loan. The unresolved question, however, is who will finance the acquisition.

Meanwhile, L&TMRH, which has built and is operating Hyderabad Metro Rail since November 2017, is expected to receive another three-month extension to continue running the system. The nearly five lakh daily passengers who use the metro and residents of suburban areas, face a longer wait for improved public transport connectivity.