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Road developers were likely to face liquidity issues over toll collection lost due to the government’s decision to ban high- denomination currency notes, rating agency ICRA said in a statement on Wednesday.
“Toll plazas have been collecting high-denomination notes like other public utilities. To avoid traffic snarls, the National Highways Authority of India (NHAI) had exempted tolling on its stretches initially till November 11, 2016, which has been extended till November 18. The loss of toll revenue for the 10-day period is expected to result in significant liquidity stress for most of the rated road projects, except the ones with a sizeable accumulated surplus and/or structural features like availability of the Debt Service Reserve Account (DSRA),” ICRA said in its note.
The country’s infrastructure sector is a significant contributor to the gross non-performing assets in the banking system. Most infrastructure companies have been struggling to meet regular debt obligations due to low revenue generation.
The DSRA, the note added, was low for certain developers owing to various factors like slow traffic growth, high premium payments and modest toll rate hikes on account of benign wholesale price inflation over the past few years.
ICRA estimated the loss of toll revenue for around 115 toll projects of the NHAI operated by private players at Rs 460 crore for the 10-day period. Beyond the 115 projects considered, the note added, the impact could be higher.
“These (115) projects constitute a very small percentage of the operational projects and hence the credit impact on the sector can be substantial,” it said.
Shubham Jain, vice-president, ICRA, added the loss of revenue would lower the ability of road developers to service debt commitments in the short term. “Most road projects have been operating on a low buffer over the DSCR. Loss of at least one-third of the monthly toll revenue is likely to result in inadequate cash flows to service debt commitments for November and December. Moreover, post commencement of tolling, traffic levels are expected to remain low initially,” he said.
However, ICRA noted the NHAI concession agreement provided for adequate safeguards against such losses and developers could seek compensation. “ICRA expects that the NHAI may opt for cash compensation instead of extension of concession, considering the developers’ financial stress. Nevertheless, there is significant uncertainty regarding the quantum, mode and timing of such compensation,” Jain said in the note.
