ICRA studied 1201 Build-Operate-Transfer (BOT) road projects that went into default between FY2011 and FY2022. The operational phase of 86 of the 120 projects that have defaulted, whereas the building phase of 34 projects. In operational projects, the majority of defaults (about 57%) are caused by lower-than-anticipated traffic, 24% are attributable to authority (delay in annuity/grant payments, suspension/exemption of toll collections), and 19% are solely attributable to sponsors (non-maintenance of road stretch, regulatory obstacles brought on by sponsors’ problems, deterioration in sponsor’s credit profile, and cash outflow from SPV). The main causes of defaults in projects that are still under development are the sponsor’s declining financial situation and the delay in acquiring a RoW.
“Lower-than-estimated traffic was on account of aggressive traffic growth expectations at the time of financial closure or loss in traffic due to alternative routes/toll leakages,” said Rajeshwar Burla, Group Head, Corporate Ratings, ICRA. The stakeholders are now better equipped to validate the traffic assumptions thanks to the availability of long-term traffic data trends across diverse geographies. Furthermore, the toll leakages were significantly reduced with the deployment of FASTag, which accounts for 97-98% of toll collections. The risk associated with using an alternate route or mode, however, is still very high. Since the nation’s transportation system is still developing, longer-term alternatives to driving include waterways, new road alignments like the Bharatmala economic corridors, and upgrades to current state highways.
Due to the sponsor’s delayed equity injection as a result of their challenged financial position, 41% of projects that were still under development at the time of default did so during the construction phase. The defaults occurred in 21% of the projects for reasons attributable to the authority (delay in transferring right of way (RoW), numerous design revisions, and resulting cost overruns), and the remaining 39% are due to both authority- and sponsor-related problems.
“Rs. 62,000 crore worth of debt was still owed on the 120 stressed assets. One-fourth of road projects have been brought back from the brink of default using a variety of strategies, including stake sales and substitution, in which powerful sponsor groups or investors (private equity funds) have taken over the stressed assets, improved cash flow positions, and restructuring. A debt of Rs 20,000 crore has been regularised as a result. However, the remaining debt of Rs. 42,000 crore is still in default or is awaiting settlement in abandoned projects, according to Burla.
Group Media Publication
Construction, Infrastructure and Mining
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