Icra-Cidc Kicks Off Construction Rating

Rating agency Icra and the Construction Industry Development Council (CIDC) have formed an alliance to jointly grade all participating entities in a construction project, including the contractor, consultant, project owner and the project itself.

The Icra-CIDC grading scheme has, so far, covered a set of diverse entities including L&T (CR1), Oriental Structural Engineers (CR2+), Petron Civil Engineering (CR2), Bhagheeratha Engineering (CR2), JMC Projects India (CR2), Soma Enterprise (CR2), Continental Construction (CR2), Tantia Construction Company (CR2), Ganesan Builders (CR3+), Shristi Infrastructure Development Corporation (CR3), Mfar Constructions (CR3) and Vensar Construction Company (CR3). The total project cost exceeds Rs 2,500 crore.

The rating CR1 indicates very strong contract execution capacity, CR2 strong contract execution capacity, CR3 moderate contract execution capacity, CR4 inadequate contract execution capacity, CR5 weak contract execution capacity and the suffix + or - is indicative of the relative standing within that grade.

 

On the one hand, the concept of grading is designed to serve as an indicator of the competence level of the entity concerned, while on the other, it is aimed at enhancing lenders' confidence in financing construction projects, and ultimately, stepping up bank participation in construction financing.

The construction sector has traditionally been hamstrung by its lack of access to institutional financing. The major factor contributing to this disadvantage has been the unique risk features of the sector itself. The construction sector accounts for a meagre 0.67 per cent deployment of the gross bank credit.

The Icra-CIDC gradings assigned provide lenders/sector participants with an independent opinion on the quality of the entity examined. Specifically, the project owner can use the grading of the contractor/consultant as an input in the project tendering process. Similarly, for contractors, the gradings are likely to facilitate acceptance and improve the terms of credit.

Construction activities account for 5-6 per cent of the country's gross domestic product (GDP) and for 40-50 per cent of the capital expenditure on projects covering various sectors such as energy, communications and transportation, defence, rural and urban infrastructure and housing.

The multiplier effect that construction-sector activities produce is high because of the high propensity to consume.

The government has recently accorded high priority to infrastructure development recognising the sector's strong linkages with the country's economic development. Following this, the construction sector has recorded an average growth rate of 8 per cent over the past two years.

Currently, road projects under the Rs 53,000 crore National Highways Development Programme (NHDP) have started rolling out and are likely to prove a major demand driver for the construction sector.

The Icra-CIDC grading exercise has covered various projects across different sectors such as roads, power, ports, urban infrastructure, and industrial structures, including four-laning of the Indore-Dewas section on NH-3 and construction of the Indore bypass, strengthening and widening of the Surat-Manor tollway, construction of a bridge across river Periyar in Kerala and various water supply projects in Maharashtra.