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Deteriorating financial performance due to an increase in “problem assets” has driven Moody’s to downgrade outlook for Indian Renewable Energy Development Agency (Ireda). If the weak financial performance lasts over the next 12-18 months, it might also compromise Ireda’s baseline credit assessment of ba3 – the agency’s long-term bond rating, it said.
At the end of the quarter ended September 30, 2018, Ireda’s non-performing loan ratio was at 7.4%, significantly higher than the 6% recorded at the end of FY17 and nearly twice the proportion seen in FY13. Moody’s estimates a slowdown in the company’s credit growth until the materialisation of Ireda’s initial public offering, which has been on the anvil for quite some time.
Ireda’s profitability – the ratio between net income and average managed assets – fell to 0.8% (on annualised basis) in the first six months of FY19. Ireda’s profitability was 2.% in FY18 and 2.3% in FY17. One-off impact of higher provisions for funded interest on restructured loans contributed to drop in profitability, Moody’s added.
Strong credit growth and mark-to-market losses from its unhedged foreign currency exposure” also pushed down Ireda’s capitalisation. However, long-term borrowings from multilateral agencies is seen to be providing support to Ireda’s funding and liquidity profile. The government routes various subsidies and grants to the renewable energy sector through Ireda.
By Uday Khare
The last few years have seen a decline in public-private partnerships (PPP) in the infrastructure sector, and this trend continued in the previous year. The poor financial condition of many sponsors, the continuation of the NPA crisis, and the resultant lack of liquidity and appetite for banks to provide funding were amongst the contributing factors.
The crisis affecting IL&FS, once the flagbearer of India’s PPP initiatives, contributed further to the decline in investor confidence in PPPs. The situation is the bleakest for the thermal power sector, with many thermal power companies on the verge of insolvency. The 40th Standing Committee on Energy estimated that out of 90,000 MW of coal-based power capacity, approximately 60,000 MW is under stress, to which lenders have exposure of approximately Rs 3 lakh crore. State Bank of India managing director Dinesh Kumar Khara was quoted earlier this year as saying that banks “do not want to touch” the power sector anymore.
However, it was not all doom and gloom. In the budget for the FY 2018-19, the Finance Minister had proposed investment of up to $85.2 billion in creating and upgrading infrastructure. Twenty four PPP projects reached financial closure in the first half of 2018 in the electricity, ports, roads, water and sewage sectors, amounting to a total investment of $3779 million.
As in previous years, roads continue to be the most popular sector for PPPs, with the Kishangarh – Gulabpura stretch on NH-79 and Gagalheri – Saharanpur – Yamunanagar stretch of NH-73 reaching financial closure this year. The renewable power sector too had its moments, with all three developers of Rewa Solar Park in Madhya Pradesh reaching financial closure this year.
While roads and renewable energy were once again the most popular sectors for PPP projects, some other sectors appear to be gaining momentum. It was a busy year for the aviation sector, with second and third rounds of bidding for the Regional Connectivity Scheme announced, and the bidding process for Bhogapuram airport ongoing.
Most recently, tenders were launched for privatization of airports at Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvananthapuram, and Guwahati. PPPs in Housing and Waste to Energy were other sectors which gained traction, with projects appearing in the pipeline.
This year also saw new models emerge. Once again, roads led the way, with National Highways Authority of India’s Toll-Operate-Transfer model, which dispenses with
construction and limited the concessionaire’s scope to toll collection and operation, successfully awarded this year. Airports Authority of India also attempted an operation and maintenance model for Ahmedabad and Jaipur airports, but these failed to generate enough interest.
The outlook for this year continues to appear uncertain, especially with the general elections around the corner, and resolution of stressed assets still ongoing.
Nevertheless, there is hope for new sectors and models to emerge.
(Uday Khare is a partner at Mumbai-based law firm Cyril Amarchand Mangaldas. Views are the author’s own)
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