Highway projects worth Rs 67K cr at high risk: Crisil

MUMBAI, October 6: About 5,100 km of under-construction highway projects worth Rs 67,200 crore are under high risk, Crisil Ratings said in a survey. Apart from this, 2,400 km operational BOT projects worth Rs 25,800 crore are at high risk mainly due to weak financial profile of sponsors and inability to service debt. "Around 7,500 km of highway projects, including 5,100 km under-construction and 2,400 km operational, awarded mostly between fiscals 2010 and 2012 on a build, operate, transfer (BOT), basis, are at high risk today," Crisil Ratings Senior Director Sudip Sural said in a conference call. Around 50 percent of the projects under-construction are at high risk of not being completed because of significant cost over-runs and weak wherewithal of sponsors. "We believe the remaining will benefit from proactive moves by the government to facilitate right of way (ROW) and other clearances. We find the recent government move to ensure 80 percent ROW, before a project is awarded very constructive," he said. Sural further said that the under-construction projects require equity and cost-overrun support of around Rs 28,500 crore over the next two years. "Of this, about Rs 16,000 crore could be stumped up from internal accrual of sponsors and sale of stake at the special purpose vehicle level. That leaves a significant shortfall of Rs 12,500 crore," he added. The report found that 26 out of 80 operational projects are in no position to service debt on their own because of lower-than-estimated traffic. These projects, which are mostly toll-based, span about 2,400 km, or 40 percent of total length of operational BOT highways, and have an outstanding debt of Rs 17,100 crore. "Operational highway projects have been facing cash flow mismatches in the past few years because of lower-than- estimated traffic volume, and interest rates that were on the ascend till 2014. "Now, with interest rates on the decline, pressure will ease a touch, but debt service coverage ratios will remain less than one, over the next two years," Sural said. As a result, timely support from sponsors to bridge cash-flow mismatches will be critical because debt in these projects is without recourse to the sponsor, he added. "In the next two years, these projects will require a toll revenue growth of 40 percent in order to service their debt obligations," said Crisil Ratings Director Sushmita Majumdar. "That's a tough task considering that toll rates are linked to WPI inflation, which is in negative territory. And the traffic has just started to inch up and is yet to reach double digits in most cases," she said. Sural said the government has already taken a number of measures to help both highway projects and their developers. "Of these, the removal of restriction on exit clause alone can allow developers to sell stakes in some projects and raise about Rs 5,000 crore. "These funds can be used to turn around stressed projects, meet existing commitments and also as growth capital. A change of promoter in projects sold could also open up access to better refinancing terms and further financial support," he added. Similarly, developers with operational projects can also securitise receivables to either raise additional debt to support fund commitments or to improve project viability by realigning debt repayment and reducing cost of borrowing. Around Rs 15,000 crore of debt can be refinanced through the capital market, including through infrastructure debt funds, he said. "We believe the steps taken towards ensuring right of way and other clearances prior to project award, and tapping the funding avenues available at the disposal of the developers will help straighten out the future of India's highway sector," Sural added.