Ind-Ra: Benefits of Roads Policy Measures Likely to Accrue Only in the Long Run

India Ratings & Research (Ind-Ra) believes that a host of policy measures announced by the government over the last few years will resurrect waning investor confidence in the struggling roads sector. However, benefits are likely to accrue only in the long term.

While the sector is saddled with a plethora of problems largely due to the present economic slowdown, policy issues also play a major role. Significant delays in land acquisition by concession granting authorities and problems pertaining to regulatory clearances are the two more common issues across projects. The issues have accentuated with the generally stressed financial and liquidity profile of road developers. The compounding effect of multiple issues is leading to project time and cost overruns and operational obstacles including strained liquidity and thus adverse impacting debt service coverages.

Some of the important policy announcements include proposals to set up a regulatory authority for highways and reschedulement of premium for certain highway projects. Although Ind-Ra views them as positive, the effect of premium reschedulement could only be marginal. Delinking of forest and environmental clearances is likely to mitigate completion risk by a reasonable extent. Policy measures relating to partial tolling during construction (on certain projects) would not only ease liquidity pressure on projects, but also assist in gauging actual traffic numbers.

Ind-Ra believes that the policy announcements are reassuring and likely to boost investor sentiments in the capital-starved sector. That being said, the sector has been too adversely affected to witness an immediate turnaround. Therefore, the agency is of the view that the accrual of benefits from these policy measures would be gradual and measured.

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