PremiumMitigation of risks through provisions of various contracts and strength of contract counterparties remain critical for the credit profile of infrastructure projects
NEW DELHI: Infrastructure activities in the country are expected to pick pace in the second half of current financial year (FY23) despite emerging global pressure points and possibility of a global recession.
In view of the positive momentum expected in the domestic market, ratings agency India Ratings and Research (Ind-Ra) has maintained a stable outlook for the infrastructure sector for 2HFY23, while revising the outlook on airports to stable from negative. It has maintained negative outlook on wind power projects.
According to the agency,infrastructure investment trusts continue to be the preferred vehicle for divesting partial or entire stake and refinancing. Refinancing has been generally carried out to raise funds, elongate the tenor and/or release some sponsor investments.
In its report on the sector, Ind-Ra has maintained stable outlook for energy infrastructure, except wind projects. The agency expects consistent demand growth and continued efforts to realise payments from distribution companies (discoms) in a timely manner to aid the growth, stable credit profiles and liquidity for energy infrastructure companies.
Tariff payments from strong counterparties such as Solar Energy Corporation of India Limited, NTPC Limited and Gujarat Urja Vikas Nigam Limited continue in a timely manner. Internal liquidity compared to the strength and diversification of counterparties is a key rating factor for all generation assets, the agency said.
Electricity (late payment surcharge and related matters) Rules, 2022, has led to the realisation of historical dues, but realisation of regular dues from some counterparties has been sporadic. Long-term improvement in the operational parameters of discoms is key for consistent improvement in counterparty risk perception, the report said.
Operational solar, transmission and thermal projects have been exhibiting stability in generation or availability parameters, adequate debt service coverage and liquidity. However, wind projects have been witnessing sporadic changes in generation levels due to wind resource variation and have generally encountered significantly more machine or evacuation issues than solar projects.
Under-construction projects have exhibited delays or cost overruns or both, due to factors such as rise in commodity prices, the impact of monsoon, and delays in receiving right of way. Mitigation of risks through provisions of various contracts and strength of contract counterparties remain critical for the credit profile of infrastructure projects, said Ind-Ra.
As in the case of energy, Ind-Ra has also maintained a stable outlook for transport infrastructure, while revising outlook on airports to Stable from Negative and maintaining Positive outlook on availability projects, such as roads under the hybrid annuity model.
Toll collections rose during 4MFY23 on the back of an upward revision of 8.4% in the toll rates with effect from 1 April 2022. The revenue of toll road assets is likely to grow by 14%-18% yoy in FY23, supported by toll rate escalation, traffic growth and the lower base effect of FY22, the agency said.
Ind-Ra has revised the rating outlook for airports to Stable from Negative for the rest of FY23, based on the resilience and visibility of traffic. Domestic traffic has been on an upswing; leisure and corporate travel are likely to improve, supported by the reducing of travel restrictions to minimum levels and the reopening of offices. Ports have benefitted from strong demand in external trade in 1HFY23, though recession might marginally impact the trade volumes in 4QFY23.
Under-construction projects could see some headwinds on account of aggressive bidding due to increased competition, input cost inflation and the weakening credit profiles of some sponsors, said the ratings energy.