India Ratings, part of international ratings agency Fitch Group, has maintained a negative outlook for Indian infrastructure projects in 2013, after factoring in the weak credit profiles of companies in the sector. Some sub-sectors have been given a split outlook. The outlook for power projects remains negative while certain pockets in the transportation sector have a stable outlook.
Various power projects face protracted delays in completion - either because of technical issues such as longer plant stabilisation or due to slow land acquisition, constraints in developing railway and transmission infrastructure and delays in operationalising captive coal mines, said the report. Fuel shortages, offtake risks and counter-party credit profiles are compounding the issues faced by these projects, making them vulnerable to ratings downgrades.
India Ratings warns that in 2013 a number of projects are likely to default on their bank debt obligations. "Alternatively, lenders might be compelled to approve forced debt restructuring packages. This is in view of their weak financial structures and multiple risks including construction delays, plant stabilisation issues and fuel supply constraints in the power sector and traffic under-performance in the transportation sector. Reduced sponsor capacity to extend support would also likely contribute to this phenomenon. In a majority of the agency's rated infrastructure projects, sponsors have played a significant role in preserving the credit profile of their projects. Deterioration in the sponsor's profile will impair the ability to keep supporting projects that have a low economic value," said the report.
It added that recent policy initiatives announced by the government are encouraging and have kindled a sense of optimism among market participants. However, the process of addressing fundamental risks through concrete and sustained on-ground actions to repair damaged credit quality is likely to be protracted, it noted.