Asset reconstruction companies (ARCs) will see their cumulative recovery rate for stressed road projects rise 700-1,000 basis points (bps) in FY25 after doubling to 50-55 per cent last fiscal, Crisil Ratings said on Monday.
This will be driven by faster completion or de-scoping of pending construction resulting in start of annuities by the National Highways
The National Highway Authority of India (NHAI), will thereby enable quicker resolutions or restructuring of debt. A healthy increase in toll collections should also support recoveries.
An analysis of the security receipts (SRs) rated by CRISIL Ratings, covering around 2,500 lane km of underlying stressed road projects with total principal debt of about ₹6,000 crore (roughly 60 per cent of road assets with ARCs) indicates as much, the agency added.
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 the ARCs.
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 de-scoping of pending RoW was done for the rest of the assets.
Analysing these projects now reveals that stabilising annuity payments due to faster completion of pending work or de-scoping of pending RoW post-acquisition by ARCs have improved liquidity for them with annuity payments adequate for servicing of restructured debt, Crisil said.
Furthermore, 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 should lead to a growth of 7-9 per cent in toll revenues this fiscal which will support the recoveries from such roads.
“ARCs will benefit from stressed road asset recoveries with healthy increase in toll collection and steady annuity payments from NHAI post completion of balance construction/ de-scoping,” Crisil Ratings Director Sushant Sarode said.
The improved liquidity and stabilised cash flows are expected to drive faster debt reduction using internal accrual, or refinancing, thus raising recovery rates for ARCs. As a result, Crisil Ratings expect outstanding SRs for these assets to be recovered over the next 3-4 years within the stipulated timelines of recovery for ARCs, he added.