India Ratings and Research has analysed the current state of the highway projects, noting that aggressive new entrants have created stress-like conditions in the sector. This has led to a decrease in bids, causing several projects to fail in achieving financial closure.

The report highlights this development just before the government's initiative to reignite private sector interest in the sector through the awards of BoT (build operate transfer) projects, where the developer bears all investment risks. According to the report, further adjustments may be necessary to rescue these new projects.

As per the infrastructure outlook for 2025 provided by India Ratings and Research, many new developers, transitioning from EPC to HAM for the first time, have struggled to secure funding due to tightened capital requirements by banks. Moreover, relaxed bidding norms have led to aggressive bidding, with financially weaker players also securing projects with lower bid premiums.

The increase in aggressive bids can also be attributed to fewer projects being awarded in recent years. Consequently, sponsors of some projects are under pressure to achieve financial closure, prompting the National Highway Authority of India to initiate project substitution to attract new investors.

Rishabh Jain, associate director at India Ratings and Research, commented that in the last couple of years, about 8-10 highway projects faced substitution due to the inability of original sponsors to achieve financial closure. However, most of these projects were bid on the HAM model, where risks are lower for developers as payments are guaranteed over a period. This situation should not affect bids for BoT projects, as developer interest would be determined by reasonable traffic projections and toll earnings.

NHAI has identified 53 BOT (Toll) projects covering 5200 km worth Rs. 2.1 trillion for bidding over the next few years, starting FY25. However, the success of these projects depends entirely on the risk appetite of investors and projections of toll revenues, necessitating stable conditions in the sector.

While a portion of the road sector is experiencing stress-like conditions, India Ratings and Research (Ind-Ra) has maintained a stable rating outlook for the overall infrastructure sector for FY25. Additionally, it has upheld a positive rating outlook on airports.