Asset reconstruction companies (ARCs) are expected to witness their cumulative recovery rate for stressed road projects rising by 700-1000 basis points (bps) this fiscal after doubling to 50-55 per cent last fiscal, stated a report by CRISIL Ratings. This, it added, will be driven by faster completion or descoping of pending construction resulting in start of annuities by the National Highways Authority of India (NHAI), thereby enabling quicker resolutions or restructuring of debt. Also, a healthy increase in toll collections is expected to support recoveries.
CRISIL Ratings analysed the security receipts (SRs) rated by the firm, covering around 2,500 lane km of underlying stressed road projects with total principal debt of approximately Rs 6,000 crore (around 60 per cent of road assets with ARCs), to release the findings. These encompass projects under build operate and transfer model (toll assets) and hybrid annuity model under NHAI which were acquired at average haircut of 40 per cent by ARCs.
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Most of the projects in the CRISIL Ratings SR portfolio had turned stressed between 2017 and 2019 due to delays in land acquisition and obtaining Right of Way (RoW) by the government and/or lower toll collection than initially estimated. Of these, half have seen completion of construction while descoping of pending RoW was done for the rest of the assets.
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Analysing these projects, CRISIL said, now reveals that stabilising annuity payments due to faster completion of pending work or descoping of pending RoW post-acquisition by ARCs have improved liquidity for them with annuity payments adequate for servicing of restructured debt.
Per the findings of the report, traffic growth for toll assets is likely to hold steady at 4-6 per cent this fiscal with healthy macroeconomic markers (growth in industrial capex, rapid urbanisation, rising exports and tourism). This, it added, is estimated to report a growth of 7-9 per cent in toll revenues this fiscal which will support recoveries from such roads.
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