7,500 km of BOT highway projects at risk: CRISIL

However, recent govt initiatives, lower interest rates can stem further slippage

Around 7,500 km of highway projects — 5,100 km under construction and 2,400 km operational — awarded between FY10 and FY12 on a build, operate, transfer (BOT) basis — are at high risk, according to CRISIL Ratings.

Its analysis shows around 50 per cent of the projects under construction are at high risk of not being completed because of significant cost overruns and weak wherewithal of sponsors.

However, CRISIL Ratings considers the recent government move to ensure 80 per cent ‘right of way’ before a project is awarded to be constructive.

Besides, steps to provide other clearances prior to project award and tapping the funding avenues available at the disposal of the developers will help straighten out the future of India’s highway sector.

 

CRISIL Ratings senior director Sudip Sural, Senior Director says, "Under-construction projects require equity and cost-overrun support of around Rs 28,500 crore over the next two years. Of this, about Rs 16,000 crore could be stumped up from internal accrual of sponsors and sale of stake at the special purpose vehicle level. That leaves a significant shortfall of Rs 12,500 crore."

As for operational highways, 26 out of the total 80 are in no position to service debt on their own because of lower-than-estimated traffic. These projects, which are mostly toll-based, span about 2,400 km, or 40 per cent of total length of operational BOT highways, and have an outstanding debt of Rs 17,100 crore.

Operational highway projects have been facing cash-flow mismatches in the past few years because of lower-than-estimated traffic volume, and interest rates that were on the ascend till 2014. Now, with interest rates on the decline, pressure will ease a touch but debt service coverage ratios will remain less than 1 over the next two years.

As a result, timely support from sponsors to bridge cash-flow mismatches will be critical because debt in these projects is without recourse to the sponsor.

Referring to the government's raft of policy measures, CRISIL Ratings says the removal of restriction on exit clause alone can allow developers to sell stakes in some projects and raise about Rs 5,000 crore.

These funds can be used to turn around stressed projects, meet existing commitments and also as growth capital. A change of promoter in projects sold could also open up access to better refinancing terms and further financial support.

Similarly, developers with operational projects can also securitize receivables to either raise additional debt to support fund commitments or to improve project viability by realigning debt repayment and reducing cost of borrowing. Around Rs 15,000 crore of debt can be refinanced through capital market including through Infrastructure Debt Funds (IDFs).