Credit risks rising for infrastructure projects in India, says S&P

Growing debt; weakening counter parties driving risks

The hit to India’s infrastructure sector from the Covid-19 pandemic will continue to be felt in 2021, even as the economy revives following the lifting of the nationwide lockdown, according to rating agency Standard & Poor’s (S&P).

Credit risks are rising because of increasing debt levels and a weakening of counter parties. Refinancing remains difficult for speculative grade-rated issuers, the rating agency said in its presentation on ‘India's Infrastructure Recovery Won't Be Quick’.

Roads

Dwelling on the specific segments of Indian infrastructure, the agency said in the roads segment, a steep fall has been followed by a sharp recovery. This gives confidence that traffic risk will subside. The annuity road projects are insulated from traffic risk.

Aviation

In the aviation sector, the recovery is unlikely before 2024. The high capital expenditure and regulatory delays will amplify refinancing risks. Air traffic will recover to pre-Covid levels only by 2024, lowering revenues. The profitability will come under pressure, with limited operating levers and high fixed costs.

Power

The power segment will be operationally resilient, but significant overdue receivables are the downside risks. The fixed tariff and regulated returns will support stable operating cash flows. Also, demand recovery appears sustainable in the power sector, with three consecutive months of demand growth (year-on-year). The renewables will maintain favourable supply position, protecting revenues, it added.

Ports
 

In ports, a recovery is likely to be gradual and varied after a moderate deterioration. Port cargo will fall moderately (in line with 10-per cent global levels and the global financial meltdown experience). The recovery should be in tandem with gross domestic product.