Credit risks rising for infrastructure sector in India
ECONOMY & POLICY

Credit risks rising for infrastructure sector in India

India’s infrastructure sector will not cease to suffer from the post-Covid heat in 2021 due to increasing debt, difficulty in refinancing and weakening of counterparties, as reported by global credit rating agency Standard & Poor’s. In a presentation titled “India’s infrastructure recovery won’t be quick”, they stated that refinancing for speculative grade-rated issuers will remain strenuous.

Thanks to the quick recovery in the roads segment post the steep fall, road projects are expected to be safeguarded from traffic risk. However, the airports segment’s recovery seems improbable before 2024. The refinancing risks in this sector are cause by excess capital expenditure and regulatory delays. According to the report, with high fixed costs as well as limited operating levers, the profitability will come under pressure.

With three consecutive months of demand growth, the demand recovery in the power segment appears to be sustainable. Despite heavy overdue receivables, the segment will be operationally resilient..

The weak companies in the distribution sector(discoms) have been adversely affected by the massive increase in overdue receivables post-March. The structural issues faced by the sector cannot be overcome despite the provision of the liquidity relief loan. The report also said that the States’ inadequate support to these discoms adds to the strain.

Gradual recovery is expected for ports, in tandem with the gross domestic product.

India’s infrastructure sector will not cease to suffer from the post-Covid heat in 2021 due to increasing debt, difficulty in refinancing and weakening of counterparties, as reported by global credit rating agency Standard & Poor’s. In a presentation titled “India’s infrastructure recovery won’t be quick”, they stated that refinancing for speculative grade-rated issuers will remain strenuous. Thanks to the quick recovery in the roads segment post the steep fall, road projects are expected to be safeguarded from traffic risk. However, the airports segment’s recovery seems improbable before 2024. The refinancing risks in this sector are cause by excess capital expenditure and regulatory delays. According to the report, with high fixed costs as well as limited operating levers, the profitability will come under pressure. With three consecutive months of demand growth, the demand recovery in the power segment appears to be sustainable. Despite heavy overdue receivables, the segment will be operationally resilient.. The weak companies in the distribution sector(discoms) have been adversely affected by the massive increase in overdue receivables post-March. The structural issues faced by the sector cannot be overcome despite the provision of the liquidity relief loan. The report also said that the States’ inadequate support to these discoms adds to the strain. Gradual recovery is expected for ports, in tandem with the gross domestic product.

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