Recoveries to double for stressed roads by FY27 on traffic: Crisil

Crisil said ARC recoveries from stressed highway assets could exceed 120% by FY27 as BOT projects turn viable after debt haircuts, higher traffic and faster resolutions via NHAI payments and IBC

With troubled highway projects from the past becoming viable due to haircuts on debt, recoveries for asset reconstruction companies (ARCs) are poised to double by 2026-27, Crisil Ratings said on Wednesday.

 

How much can recoveries rise by FY27? 

Cumulative recovery rates are slated to rise over 120 per cent against FY25 levels, based on Crisil’s analysis of 2,500 lane kilometres of stressed but operational projects and 1,000 lane kilometres of terminated road projects.

 

Why did these highway projects turn stressed? 

A majority of operational road projects, primarily under the build-operate-transfer (BOT) model, faced stress between FY17 and FY19 due to construction delays and cost overruns amid challenges in land acquisition and obtaining right of way (ROW).

 

How did ARCs make these assets viable again? 

“These were consequently acquired by ARCs between 2019-2022 at sizable haircuts of 44 per cent on principal outstanding debt. With traffic growing at a CAGR of 9 per cent between FY22-25, descoping of pending ROW and completion of delayed construction, these projects became viable at the reduced debt levels,” Crisil said.

 

What do debt metrics suggest about improving cash flows? 

The debt-to-annuity ratio of these assets declined from 0.57 times in FY24 to 0.33 times in FY25, while the debt-to-toll ratio reduced from 4.90 times to 4.76 times over the same period. “This improving trend is expected to sustain the next fiscal as well, driven by a 4-5 per cent increase in traffic growth,” said Mohit Makhija, senior director, Crisil Ratings.

 

How are recoveries getting accelerated? 

Prudent valuation by ARCs during acquisition is accelerating recoveries by 12-18 months compared to earlier estimates, which Crisil said could help lift cumulative recovery rates to above 120 per cent by FY27.

 

What factors will support ARC recoveries going ahead? 

“This will ride on timely annuity payments by the National Highways Authority of India (NHAI), healthy toll collections and resolutions through the Insolvency and Bankruptcy Code (IBC). Further, having gained substantial capabilities in the road sector, ARCs are also eyeing acquisition of terminated assets, banking on collaborative efforts by multiple stakeholders to pave the way for timely recoveries,” Crisil said.

 

What role does NHAI conciliation play in settlements? 

Developers typically opt for conciliation with NHAI to settle claims. Crisil said NHAI’s conciliation mechanism resolved claims worth Rs 35,000 crore between FY22 and FY24, compared to Rs 24,000 crore between FY19 and FY21, underscoring its growing significance in the recovery landscape.