Fitch Ratings’ outlook on Indian infrastructure for 2012 remains ‘negative’, according to a recently issued report. The ratings agency blames both macro-economic factors, such as a precarious interest rate environment, in addition to sector-specific issues for a forthcoming wave of credit downgrades.
Power generation projects are more vulnerable to downgrades than transportation assets, although no infrastructure subsector appears to be immune, according to the report, which is dubbed 2012 Outlook: Indian Infrastructure. Project companies on Fitch’s radar are likely to inherit damage to their credit profiles, and as a result Fitch is prepared to issue a wave of rating downgrades and outlook changes.
Fitch offers some glimpse of a silver lining, albeit a somewhat backhanded hope. Analysts point to existing low rating levels that have factored in much of the credit risk and could serve as a cushion to absorb some of the shock of the anticipated downturn. In exchange, this could prevent more drastic actions by the agency.
A macro-economic driver of the anticipated ratings downgrade wave surrounds a scarcity of resources, particularly fuel. Weaker supplies coupled with rising power generation costs for “state-owned off-taker utilities” would be damaging, the report indicates.
In transportation, toll road projects that are ‘ramping-up’ during a slowdown could be adversely affected. Given that the early stages of a new project are critical, any added pressure from an economic downturn would only exacerbate those risks.