Ind-Ra maintains stable outlook on energy, transport infra for FY21

India Ratings and Research (Ind-Ra) has maintained a stable outlook on the overall infrastructure sector for FY21, while revising the outlook on toll roads and wind sector to negative from negative-to-stable and stable, respectively.

Contracted revenue, minimal volume risk and moderate-to-strong counterparties mitigate cash flow concerns in solar assets, while economic growth deceleration affects the transportation sector, particularly toll roads, it said. Infrastructure assets are intrinsic to growth revival as well, it added.

Wind assets face headwinds such as resource volatility and weakening profile of counterparties and original equipment manufacturers, who are also operations and maintenance contractors.

The overall financing environment for infrastructure remains moderate. Bank-loan financing continues to dominate with increasing interest of international investors in renewable projects with a reasonable operational history. The green shoots at the international market prevent a breach of group exposure norms of banks, thus making banking lines available for borrowings.

Any liquidity concerns in the lending market or increase in interest rates will be a key monitorable. Given the uneven counterparty behaviour in the energy sector, Ind-Ra considers sponsor’s credit profile and undertakings critical for analysing the projects exposed to weak counterparties.

The stable outlook for annuity roads stems from protected revenues for operating projects. Under-construction projects are exposed to monsoon-related vagaries and equity infusion risk, and any progress is highly dependent on the credit profile of sponsors. The progress of various under-construction projects is slower than expectations. The exposure of toll roads to traffic risk and emerging major maintenance cycle during FY21 and FY22 are concerns.

Import of modules from China

Airports have sufficient buffers to ride through low passenger growth stemming from coronavirus concerns. The regulator’s approval of capex for upcoming expansion is a positive; however, a timely order from the regulator for the next control period is a key monitorable.

Ind-Ra expects the ratings of solar projects to remain stable in FY21, given that revenue generation is in line with projections and the limited nature of exposure to weak counterparties. Construction completion of projects with strong counterparties will be positive for the project ratings. However, there could be some slippages in construction timelines due to delays in the import of modules from China. Given the application of the force majeure clause, the tariff is unlikely to be affected and the agency does not expect any significant cost overruns.

Uneven plant load factor performance, weak counterparties and a few weak operations and maintenance contractors are exerting pressure on the ratings of wind power projects.

And for thermal projects, the ratings of projects with power purchase agreements covering the majority of capacity continue to be stable. Notwithstanding coal inventory levels, the possibility of coal supply issues in FY21 due to mine-level disturbances cannot be ruled out.

The rating firm expects a stable performance by interstate transmission projects in FY21, though there has been a minor elongation in receivables recently.