Economy

Fitch retains negative outlook for infra projects

Shankar Subramaniam Mumbai | Updated on November 16, 2017 Published on July 17, 2012

Fitch expects the ratings of project companies to remain under pressure from equity capital constraints, high interest rates, slowing GDP growth and currency depreciation.

Fitch Ratings has said its outlook for the Indian infrastructure projects remains negative.

This is because the sector is driven by an expected further increase in macroeconomic challenges and sector-specific stresses, it said.

Fitch expects the ratings of project companies to remain under pressure from equity capital constraints, high interest rates, slowing GDP growth and currency depreciation. This is in addition to fuel shortages, execution delays for power projects and prospects of slowing traffic growth for transportation.

Volatile stock market

Fitch said sponsors with stretched balance-sheets will struggle to raise funds for a growing number of construction projects and to support underperforming assets, largely because of the weak and volatile stock market.

So, developers may be forced to selectively support projects with a long-term economic value in contrast to their earlier strategy of preserving bank relationships by propping up projects. Such a strategy could trigger some project loan defaults or necessitate debt restructuring.

Fuel shortages, weak offtake

Power projects will continue to grapple with fuel shortages and weak offtake.

Coal India’s mandate to sign fuel supply agreements is unlikely to overcome the systemic shortage of domestic coal.

Despite the recent fall in global coal prices, power generated from imported coal will still be expensive given the financial distress for several offtaker utilities. Also, a weak rupee negates the benefit of falling coal prices.

The economic slowdown could moderate traffic growth expectations for the transportation sector - both toll roads and airports, it added.

>murug@thehindu.co.in

Published on July 17, 2012
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