INFRA ON BUMPY TRACK

India Ratings has maintained a negative outlook for the infrastructure sector in the second half of 2013, citing the current unfavourable macroeconomic variables and project-level challenges. "The slowing economy will have a negative impact on transportation assets, particularly those in early ramp-up stages. Road and port projects continue to be plagued by execution challenges and poor traffic, while a sizeable number of power projects continue to be impacted by fuel shortages, execution bottlenecks and weak off-taker quality," the rating agency said in a report released here today. This, the report said, will constrain the sponsors' ability to raise equity, which in turn will pressurise weaker projects, especially those with frail financial structures. India Ratings, however, added that "the long-term credit fundamentals for infrastructure projects remain protected, underpinned by favourable demand trends due to the massive infrastructure deficit in the country. But pain points over the next 6-12 months are unlikely to materially subside." Noting there was near four-fold rise in the number of companies with a negative outlook since December last, the report said as of July 15, as many as 21 per cent of firms in portfolio carried a negative outlook. This is a massive jump from 8 per cent in December 2012. With already 39 per cent of the firms rated by it having 'Ind BBB-' or even lower ratings, the report warned that any further worsening of the economic variables beyond those factored in could lead to pressure on rating levels. However, the report also noted that there have been some rating upgrades as well, as a few companies addressed their risks leading to improved cash-flows. A combination of project-level failures and negative macroeconomic conditions has contributed to the deterioration in credit profiles, which saw around 7 per cent companies' ratings getting downgraded to 'Ind C' or 'Ind D' during the last six months. This reflects defaults in debt service or pending loan recast, said the report.