Nearly Rs 56,000 crore out of the total debt of Rs 1.73 trillion can be refinanced at lower borrowing cost across various infrastructure sub-sectors in India Ratings (Ind-Ra) portfolio till fiscal 2019.
According to the ratings agency, there could be a shift in the type of instruments issued for the purpose of raising capital in the sector largely to the capital market instruments like bonds, from the conventional term loans.
"For each one per cent reduction in interest rate, the incremental surplus as a percentage of cash flow available for debt service would be highest in toll roads, followed by solar and wind energy. This could mainly be because the interest burden on these sectors is high as most of these projects are in the ramp-up stage," it said.
The agency noted that solar energy projects, owing to their stable revenue profiles and better counterparties, and toll road projects, with reasonable track records and stronger sponsors and longer tail period, appear to be the ideal candidates for refinancing.
"Though a replacement of banks loans by bonds is expected, traction will be witnessed through infrastructure investment trusts," Ind-Ra said.
It said the benefit of interest rate reduction will be the least for the annuity sector, followed by the thermal power sector, because refinancing risk has already been factored in at the time of initial funding for the former and due to minimal improvement in persistent issues in the latter.
"An estimated Rs 4.5 crore per project anually is projected to be the surplus for the current fiscal, based on the average interest rate reduction of around 65 basis points witnessed for Ind-Ra rated entities across various infra sectors. The debt service coverage ratio is likely to improve 0.04x in FY18 across infra sectors," it said.
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