Infrastructure sector expects reforms to accelerate project execution next fiscal

| | Updated on: Jan 01, 2014

Slowdown, tight liquidity, policy issues to impact sector a couple of quarters

The country’s infrastructure sector, grappled with several challenges such as policy delays and financing issues, expects the situation to improve after a couple of quarters as some reforms initiated by the Government would yield results by then.

Given the current subdued pace of project implementation and various concerns in the sector and the economy, the projected target of $1 trillion investment in 12th Plan in infrastructure is severely challenged.

Three broad challenges infra companies face have been identified — policy delays and clearances, financing issues such as high interest rates and poor liquidity, and fuel concerns for power projects.

Says E. Sudhir Reddy, Chairman and MD of IVRCL Infrastructures & Projects Ltd: “It simply bogs down to an inclusive decision-making process that involves policy makers, bankers and the industry. It’s clear from the current stalemate that in most situations we function in silos. A developer can handle execution risks, but he simply cannot handle environmental risks and other extraneous factors.”

Analyse various projects executed by the Government in the area of roads and it would be clear that these, too, have failed on several fronts. So why is the private sector being arm-twisted? he asks.

Huge prospect Hemant Kanoria, CMD of SREI Infrastucture Finance Ltd, says the infra sector prospect is huge, but few areas need to be tweaked and implemented expeditiously. Financing is a major aspect. There are funds, but the Government needs to streamline its flow.

Interest rates have ruled high for nearly three years, which have gone up from 8 to 8.5 per cent to 12 to 12.5 per cent. This factor alone has thrown all calculations out for the developer. Some of the delays caused by regulatory issues have added to the woes. Yet the developer gets penalised, says the CFO of an infra company, requesting anonymity.

The BOT (build-operate-transfer) projects under the National Highway Authority of India have been tough for developers and most of them are now shying away from bidding for such projects and focussing only on EPC (engineering, procurement and construction) works, IVRCL’s Reddy adds.

The sector’s expectations during 2013 in terms of softening of interest rates and more reforms did not materialise. This has kept a few investors away from picking up stakes in projects on offer.

However, GMR Infrastructure Ltd and GVK Power and Infrastructure Ltd have taken lead in divesting stakes in some of the overseas assets. There have also been a couple of transactions in the power sector involving GMR and Meenakshi Energy and Infrastructure Holdings Pvt Ltd. Companies such as Larsen & Toubro Ltd and GMR are looking at listing in Singapore.

Foreign investor Barring these players, efforts of the companies to divest stakes have failed to fructify as the comfort level for foreign investors is still not there, says T. Adibabu, Chief Operating Officer of Lanco Infratech Ltd.

Given the tight liquidity concerns, several companies have sought to restructure debts.

Isaac A. George, CFO of GVK, told Business Line the next the financial year (2014-15) is expected to be better as some of the reforms initiated by the Government get implemented. It is also expected that the liquidity situation would improve. All these would attract overseas investors back to projects in India.

Diversified companies such as GVK, Lanco and GMR, which have a portfolio of gas-based projects, have been adversely affected by poor gas supply from the KG Basingas producing fields, off the Andhra coast.

The year 2014 is expected to see a series of stake sale deals in the road, airport and power sector assets. Several companies are close to inking deals. These include the NCC-Gayatri power plant in Andhra Pradesh, and GVK’s airport and Lanco Infra’s power stake sale plans.


Published on January 01, 2014

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