Secured loans to PPP projects to help road building sector
Mumbai: RBI move to consider loans to public -private-partnership (PPP) projects as secured lending and initiatives such as the creation of Infrastructure Debt Fund (IDF) augur well for the ailing road building sector, ratings agency ICRA said Thursday.
"In March, the RBI had allowed loans to PPP road projects to be treated as secured subject to certain conditions, which is expected to improve lending to the sector to some extent," ICRA said in a note.
Apart from that, other initiatives like starting IDFs and the active role played by the re-financier India Infrastructure Finance Company (IIFCL) will also help the road building sector, it said.
ICRA senior vice-president Rohit Inamdar said 18 projects awarded last fiscal could not achieve financial closure till March due to uncertainty on land acquisition and approvals as well as reluctance on the part of banks to fund the aggressively bid projects.
Additionally, he said, the pain inflicted by a slowing economy also leads to concern on the toll roads as traffic decreases, while additional interest rate burden resulted in pain on debt servicing capability.
"Many lenders have introduced stringent conditions like 100 percent right of way, clearance and significant upfront contribution from promoters before the sanction/disbursement of the loan," he said.
The pain was visible in the total length of the road projects awarded, Icra said, pointing to the 1,156 km of projects awarded by the National Highways Authority as against the 6,491 km the previous fiscal.
However, Icra said work on the project execution front improved in FY'13, with an average of 7.9 km of road being completed per day as against the previous fiscal's 6.2 km.
Within this, however, progress on projects awarded in FY12 remained muted due to "absence of requisite right of way, clearances, and inability to achieve financial closure," it said, adding that de-linking of environment and forest clearance, and proposal to ease raw-material (aggregate) supply have been positive developments.
"Coordinated efforts from multiple authorities are required to further streamline and shorten the clearance process," it recommended, adding that Finance Minister P Chidambaram's proposal of setting up a regulatory body for the road sector should also be expedited.