India Ratings maintains a negative outlook for the infrastructure sector

MUMBAI: Citing 'unfavourable macro-economic variables and project level stresses', ratings agency India Ratings & Research has retained the negative outlook on infrastructure sector for second half of financial year 2013-14.

"The slowing economy will have a negative impact on transportation assets, particularly those in early ramp-up stages. Road projects continue to be plagued by execution challenges. A sizeable proportion of power projects continue to be affected by the country’s systemic fuel shortages, execution bottlenecks and weak off-taker quality. Constraints on sponsors’ ability to raise equity will pressurise weaker projects especially those with frail financial structures," noted the rating agency.

According to the official release, as of July 15, 2013, 21% of the rating agency's portfolio carried a negative outlook - up from 8% in December 2012. "That said, some operating projects have weathered the storm, adequately addressed a number of previously identified risks and exhibited improving cash flow generating capacity, resulting in a few rating upgrades. A combination of project-level failings and negative macro-economic conditions has contributed to the deterioration in credit profiles," the analysis said.

The rating agency observed that impediments to land acquisition and continued delays in obtaining statutory permits for captive coal blocks (CCB) allocated to 11% of the rated portfolio of power projects have delayed the commencement of mining operations. "This has resulted in a regulatory threat of CCB revocation. Unless the contracted quantities of coal of specified quality are delivered to power projects having fuel supply agreements with Coal India, their ability to operate at break-even plant load factor levels, as a minimum, could be impaired. Given the weak financial positions of several state-owned utilities, efforts being made by several merchant power plants to secure long-term off-take agreements are unlikely to completely succeed," the note said.