India Ratings and Research (Ind-Ra) on Thursday revised outlook for infrastructure to ‘stable’ for 2021-22 from ‘negative’.
The stable outlook factors in the contracted revenue visibility, long-tenor contracts enabling financial flexibility to an extent and improving people traffic and cargo volumes, on the back of a strong economic recovery expectation for FY22, it said.
“Ind-Ra has revised the overall infrastructure sector outlook to stable for FY22 from negative, while maintaining a negative outlook on airports and wind power projects,” the rating agency said in a statement.
Despite the doom and gloom beginning mid-March 2020, most sub-verticals of the infra sector have shown resilience and are above pre-covid levels, it said.
“However, internal liquidity continues to be critically monitorable compared to the business or counterparty stress expected in FY22. Any wide-ranging COVID-19 resurgence will change the expectations on counterparty behaviour or traffic recovery,” the statement said.
Though infrastructure projects have a long operating period, stressed liquidity could lead to downgrades, especially in airports, metro rail and wind sectors, it said.
Vishal Kotecha, Associate Director, India Ratings, says, “Pooling of assets is favoured in Indian and foreign markets, as the diversification has emerged as a dominant method of addressing counterparty risk in renewable projects and traffic risk in toll projects. The traction in InvITs and pooled structures is expected to rise by about Rs 850 billion in roads and Rs 1,000 billion in the energy space over the next one to two years.”
Pooling of assets is favoured in Indian and foreign markets, as the diversification has emerged as a dominant method of addressing counterparty risk in renewable projects and traffic risk in toll projects.
InvITs have proved to be effective for pooling the assets and attractive for investors, given their governing regulatory structures.
Furthermore, infrastructure projects with a stable credit profile are taking advantage of a low interest regime to refinance their loans. Sponsors are also using this opportunity to upsize debt and release funds for further growth.
It said solar projects continue to have stable operations and an improving counterparty profile as more projects have central government agencies as counterparties.
About wind power projects, it said generation variability and payment delays from counterparties continue to weigh on the credit profiles of wind projects.
Paragjyoti Saikia, Analyst, India Ratings said, “Wind assets are prone to more vagaries than solar power projects as generation variability in wind is seen at more than 10 per cent y-o-y than that of solar variability generation at 3 percent yoy. Furthermore, reliance on original equipment manufacturers is significantly higher for wind power projects.”
The statement said the revision in the rating outlook to Stable from Negative on toll roads is aided by the recovery seen in toll collections to pre-covid levels in October and November 2020.
Rishabh Jain, Analyst, India Ratings says, “Around 65 hybrid annuity model projects worth Rs 340 billion of debt is expected to commission by December 2021; only 38 projects with Rs194 billion of debt are ideal candidates for refinancing, considering the projects have been funded below the bid project cost.”
