Ratings agency Fitch has said the Indian infrastructure industry faces a negative outlook on account of increase in macroeconomic challenges and sector-specific stresses.
"Fitch expects the ratings of project companies to remain under pressure from equity capital constraints, high interest rates, slowing GDP growth, currency depreciation, fuel shortages, weak off-takers, execution delays and prospects of slowing traffic growth for transportation," Fitch said in its recent report titled '2012 Mid-Year Outlook: Indian Infrastructure'.
The rating agency said the proportion of negative outlook, which is 24 percent, would have been higher, if not for the support of non-contractual sponsor and expectation of continued support in many cases.
"Fitch believes that sponsors with stretched balance sheets will struggle to raise funds for a growing number of construction projects and to support under-performing assets, largely because of the weak and volatile stock market," it said.
Developers may be forced to selectively support projects with a long-term economic value in contrast to their earlier strategy of preserving bank relationships by propping up projects, the report said.
"Such a strategy could trigger some project loan defaults or necessitate debt restructuring programmes," it said, adding the power projects would continue to grapple with fuel shortages. "The state-owned Coal India's mandate to sign fuel supply agreements is unlikely to overcome the systemic shortage of domestic coal.
"Despite the recent fall in global coal prices, power generated from imported coal will still be expensive given financial distress for several off-taker utilities. Also, a weak rupee negates the benefit of falling coal prices," the rating agency said.
On transportation front, it said that the economic slowdown could moderate traffic growth expectation for this sector, both toll roads and airports. Fitch Ratings, however, expects that lower interest rates, a rebound in economic growth, renewed investor appetite facilitating equity flows into infrastructure and a strengthening rupee could help stabilise the credit quality of infrastructure projects.
"Similarly, government action aimed at removing hurdles to timely project execution, addressing fuel scarcity and initiating sector reforms could also help preserve the credit quality," it said in the report.