Credit rating services major ICRA is set to roll out a fresh set of ratings for a toll road project, a transmission network and an annuity road project under the new expected loss-based credit rating approach for the infrastructure sector.
Budget proposalThe move comes in the backdrop of the Budget expressing the need for a new rating approach for infrastructure companies and initiatives of the Ministry of Finance and new norms formulated and announced by ICRA for the sector.
The new ratings framework comments on the expected loss of a project entity, factors in the probability of default and the recovery prospects, Shubham Jain, Vice-President, ICRA, told
The new rating approach enables better risk-based pricing and can also help in opening up long-term funding avenues for the sector.
Apart from being useful for fundamentally strong projects which face temporary cash flow mismatches during the extended lifecycle of the project, they would give a clearer picture of the finances, Jain explained.
Overall recoveryExplaining the rationale of the new system, Jain said it will focus on the overall recovery of dues by the investor or lender, a metric that can be evaluated subsequently.
That makes this scale amenable to get itself evaluated for its differentiating and predictive capability.
The new rating approach factors in issues beyond the control of the company. For example, demonetisation and its impact on a road project. A good project could have been impacted due to issues relating to demonetisation where toll collection was suspended for about three weeks.
Jain expressed the need to develop alternative funding avenues as currently banks and NBFCs are overburdened by infrastructure credit. Among other factors, it limits their ability to undertake fresh lending.
Jain said, “Emerging avenues like Masala bonds, InvITs, and NIIFs have the potential to significantly improve the infrastructure funding landscape in India. However, these being new products, would require consistent regulatory support and investor acceptance.”