Economy

ICRA maintains stable year-end outlook for power, road sectors

Our Bureau Mumbai | Updated on December 25, 2018 Published on December 25, 2018

Road projects could see a temporary slowdown in 2019, said ICRA   -  THE HINDU

Rating agency also warns of constrained funding from banks

Rating agency ICRA has announced it will maintain a stable year-end outlook for two major infrastructure sectors — roads and power.

While there is a marginal increase in bank credit towards both the sectors, the agency noted that with banks facing a huge stressed asset problem, their ability to extend credit to the already-stretched sectors, such as infrastructure, will remain constrained.

In the road sector this poses a set of challenges, as developers need to raise debt to be able to participate in hybrid annuity model (HAM) projects tendered by the government.

This model, along with the engineering, procurement and construction (EPC) model will dominate the awarding of new projects going forward, experts believe.

According to ICRA, lenders, in some cases, insist on higher as well as upfront equity infusion, particularly in the case of smaller players and developers with leveraged balance sheets.

Slow growth

“Many infrastructure players have raised funds through the corporate bond market for completed projects (replacing bank credit with bonds) – which is also one of the reasons for the subdued growth of banking credit to the sector,” the report said.

While ICRA expects executions in the road sector to witness a temporary slowdown during the 2019 general elections, it maintains that a strong unexecuted pipeline and concerted efforts on the right of way put the NHAI on a strong footing.

Power demand

The power sector, according to ICRA, may witness a healthy demand growth at about six per cent for FY19.

This coupled with the slowdown in the addition of new capacity and slow progress in resolution of stressed thermal assets would enable a steady improvement in the utilisation of the existing capacity, the agency noted.

If the demand growth of six per cent sustains over the next three years, the utilisation of the thermal capacity will improve to about 63 per cent in FY20, and further inch upwards to about 67 per cent by FY22, it added.

ICRA also noted the increased demand for electricity, coupled with the shortfall in coal supply from domestic sources, has led to higher dependence on costlier coal imports in FY18 and FY19.

The rating agency notes that the improvement in the operational profile of the distribution companies remains slow, given that the reduction in AT&C losses is much lower than expected across States.

Going forward, it said, improvement in operating efficiencies, as well as timely and adequate tariff hikes along with the subsidy support from the respective State governments are crucial to improve discom finances.

Published on December 25, 2018

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