Ind-Ra Revises Outlook on Infrastructure Sector to Negative to Stable

India Ratings & Research (Ind-Ra) has revised the overall outlook on the infrastructure sector to negative to stable for FY16 from negative despite having mixed outlooks on the subsectors. Ind-Ra believes the on-going measures by the government and regulators address the fundamental shortcomings on the policy side and could gradually rebuild dwindling stakeholders' confidence in the sector. Although these measures will steer the sector in the right direction, a substantial shift from the current path is unlikely in FY16-1HFY17.

Although government actions for addressing fuel-related risks through the re-auction of coal blocks, facilitating approvals and clearances and the marginal improvements in the counterparty credit profile are encouraging, the thermal power sector is yet to completely clear out the excess baggage of the past. The general fuel supply position at many thermal plants has remained lower-than-comfortable. Should the receivable days of these plants increase, the project companies will have to either additionally leverage or depend on support from sponsors. The former could lead to more expensive power while the latter may not be too forthcoming, given the stressed liquidity position of the sponsors.

Ind-Ra has maintained a Negative Outlook on toll roads for FY16 to reflect the anaemic growth-driven traffic underperformance. Although Ind-Ra expects the overall economic growth to be higher (yoy) in FY16, the toll roads, to catch up the lost traffic of the past two years, will have to cover substantial ground.

Ind-Ra has maintained a Stable Outlook on airports as credit fundamentals in the agency's rated airports are stable and likely to remain so in FY16. The segment's financial and operating performance was in line with Ind-Ra's base case expectations supported by sustainable historical traffic gains, particularly international passenger enplanements and growth in non-aeronautical services. The traffic for Ind-Ra rated airports is likely to be on upward trajectory path as they are international gateways.

The Outlook for ports is revised to Stable for FY16 from Stable to Negative, with Ind-Ra expecting moderate improvements in throughput volumes and largely stable revenue profiles.

Ind-Ra believes the reasonable investment appetite will continue for investments in availability revenue-based assets. Stable revenue performance and the comfortable quality of the revenue counterparty will mainly drive the ratings for these market instruments.

The consolidation of weaker sponsors in the hands of stronger ones over the longer term is a distant prospect. A buoyant economy would be conducive for raising the much-needed equity and for asset sales, some which Ind-Ra has seen in the recent past. Should economic fundamentals and policy interventions play out favourably, the agency believes the infrastructure sector will witness renewed investor interest.

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