BackOnly a fourth of road assets out of rough patch post default: Report
Deterioration in financial profile of sponsor and delay in securing right of way (RoW) are the primary reasons for defaults in under-construction projects
PremiumNEW DELHI: In a study of 120 BOT road projects which started defaulting between FY11 and FY22, only a fourth have come out of default, rating agency Icra Ltd. said on Thursday.
“The total debt outstanding for the 120 stressed assets stood at ₹62,000 crore. One-fourth of road projects have come out of default through various routes viz. stake sale and substitution wherein strong sponsor groups/ investors (private equity funds) have taken over the stressed assets, improved cash flow position, and restructuring. Through this, ₹20,000 crore of debt has been regularised. However, balance ₹42,000 crore of debt is still in default or is awaiting settlement in terminated projects," Rajeshwar Burla, group head, corporate ratings, ICRA, said.
“In case of operational projects, majority (57%) of the defaults are on account of lower-than-estimated traffic, 24% are attributable to delay in annuity or grant payments, suspension or exemption of toll collections by the authority and 19% of the defaults are solely attributable to sponsors," as per a report by ICRA.
Giving more insights on lower-than-estimated traffic, Burla said, “Lower-than-estimated traffic was on account of aggressive traffic growth assumptions at the time of financial closure or loss in traffic due to alternative routes/toll leakages.“
However, according to the agency, with availability of long-term traffic data patterns across various geographies, the stakeholders are now better placed to validate the traffic assumptions.
Further, with the implementation of FASTag through which 97-98% of toll collections are made, the toll leakages got arrested to a significant extent. “However, the alternate route/mode risk continues to remain a major risk," it added.
“Deterioration in financial profile of sponsor and delay in securing right of way (RoW) are the primary reasons for defaults in under-construction projects," Burla noted.
“With the country’s transportation network still evolving, alternate modes of transportation in the longer term such as dedicated freight corridor, waterways, new road alignments like economic corridors under Bharatmala as well as upgradations of existing state highways could pose a potent threat," he added.
On reasons for default in case of under construction projects, around 41% of the projects defaulted during the construction phase because of delay in equity infusion by sponsor due to their stressed financial position.
In 21% of the projects, the defaults occurred due to the reasons attributable to authority (delay in handing over right of way (RoW), multiple changes in designs and ensuing cost over-runs) and the remaining 39% is on account of both authority and sponsor-related issues, the ICRA said in its report.
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