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Global rating agency Fitch has said many infrastructure projects in India have strong economic profile but the sector is not immune to the financial crisis.
According to Fitch, the outlook on infrastructure credits is largely stable. It said, "Many of the rated projects have favourable economic profiles including a strong-to-fair capacity to repay debt." However, it added further that many projects carry a heavy debt load and debt as a percentage of total project capitalisation has ranged from 48 per cent to 86 per cent.
According to Fitch, "Demand for infrastructure in India will far exceed availability for the foreseeable future. Long-term economic value of many of these assets remains strong."
The economic crisis facing the country is not yet over and there is a need for the government and central bank to get together to take up measures that can help avoid the worst. Though, the infrastructure projects have some risk factors but still it sees infrastructure spending as a tool to counter slowdown.
Risks such as delays in project completion, ability of equipment suppliers to meet deadlines and readiness of bank syndicates to increase lending for potential project cost overruns can result in selective downgrades, it said.
Pointing that there has been a fall in air traffic and passenger numbers, Fitch said, "Infrastructure sector is resilient but not immune to the financial crisis and the performance will continue to be impacted".
The agency said some migration is also likely to take place from commercial banks to the bond markets through the bundling, restructuring and securitisation of multiple project loans.
It also said, "While these prospective portfolios could include some projects under construction, the higher rated securitisations will be dominated by cash flows from operating projects". The Economic Times
April 20, 2009
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