CRISIL: ARCs to See 700-1000 bps Recovery from Stressed Roads This Fiscal

According to a report by CRISIL Ratings, asset reconstruction companies (ARCs) are expected to see their cumulative recovery rate for stressed road projects increase by 700-1000 basis points (bps) this fiscal year, following a rise to 50-55 per cent last fiscal. The report explained that this improvement would be driven by faster completion or descoping of pending construction, leading to the initiation of annuities by the National Highways Authority of India (NHAI). This, in turn, would enable quicker resolutions or debt restructuring. Additionally, the report noted that a significant increase in toll collections is expected to support the recoveries.

CRISIL Ratings analyzed the security receipts (SRs) rated by the firm, which cover approximately 2,500 lane kilometres of stressed road projects, with a total principal debt of around Rs 60 billion (representing about 60% of the road assets held by ARCs). These projects include those under the build-operate-transfer (BOT) model and the hybrid annuity model under NHAI, which ARCs acquired at an average haircut of 40 per cent.

The report also highlighted that most of the projects in the CRISIL Ratings SR portfolio became stressed between 2017 and 2019 due to delays in land acquisition and obtaining Right of Way (RoW) by the government, as well as lower-than-expected toll collections. Among these, half of the projects have completed construction, while the pending RoW issues for the rest of the assets have been resolved.