Lacklustre toll roads, thermal and wind energy brought down the overall outlook of infrastructure sector to negative.
Wind energy that had stable outlook in fiscals 2016 and 2017 has a negative outlook for fiscal 2018, while airports have moved to positive from the earlier stable outlook, according to India Ratings and Research (Ind-Ra).
Annuity road projects, power transmission and seaports continue to have a stable outlook, which is a good sign for the overall infrastructure sector.
“Reviving the investment cycle in the economy is the biggest challenge at the moment. The economy still has not come out of the debt overhang caused by the debt-fuelled investment boom in the infrastructure sector in the initial years of this decade. Although we may not have reached a level that can be called balance-sheet recession (meaning value of assets is less than that of liabilities like in Japan during the 1990s), the debt overhang of infrastructure companies coupled with banks’ high non-performing assets (NPAs) has certainly emerged as a major constraint for catalysing the private sector investment in the economy,” said Sunil Kumar Sinha, principal economist and director, public finance, Ind-Ra.According to a road infrastructure firm, demonetization affected toll revenues thereby resulting in certain issues is servicing debt. This viewpoint was reflected in Ind-Ra report released on Monday.
As reported by DNA Money on May 2, in FY17, India, for the first time in history, became a power-surplus country, leaving behind a historical legacy of increasing power deficit. In the April-February period of the current fiscal, it exported around 5,798 million units to Nepal, Bangladesh, and Myanmar. As per the Central Electricity Authority, India is likely to end fiscal 2017 with 1.1% excess electricity supplies. But Ind-Ra report states that “with the current rate of capacity additions, Ind-Ra expects a minimum 2% dip in plant load factor (PLF) in FY18…Irregular power scheduling like in 2016, compounded by infirm renewable power generation, could force plants to operate below the normative load factor in fiscal 2018.”
On the renewable power front, the solar energy sector is shining over wind power projects. The credit quality of wind power projects is likely to worsen; on the contrary, solar projects seem to have a promising future due to fall in panel prices leading to not only reduction in funding costs but also lower tariffs.
Ind-Ra believes that the developers with a reasonable number of operational road and power projects, notwithstanding the projects’ credit quality, will bunch assets under the Infrastructure Investment Trusts (InVITs) to deleverage in this fiscal. Last week, IRB InvIT Fund was successfully launched and over scribed. Other infrastructure players, too, are queuing up, among them are Reliance Infrastructure, MEP Infrastructure Developers, GMR Infrastructure, Sterlite Power Grid Venture, IL&FS Transportation Networks, among others.