The 10-year cumulative default rate for infrastructure projects has risen to 5.8 percent globally, according to a report by ratings agency Moody’s.
The figure represents a 23.4 percent rise on the 4.7 percent reported by Moody’s in a similar report last year. The uptick has been more pronounced among PPP projects, whose default rate has increased from 3.9 percent to 5.2 percent.
Moody’s cautioned that despite the increase, the default rate for infrastructure projects is below the average wider project finance rate of 6.7 percent. The report studies over 30 years of project finance debt transactions and has a 9 percent larger data set than last year’s report, which added further defaults to the infrastructure and PPP sector from 2014 and 2015.
The infrastructure sector – which for the purpose of the study encompasses only social and transport projects – experienced significant stress between 2009 and 2015, Moody’s reported. The 84 defaults recorded by the study in this period account for 75.7 percent of total infrastructure defaults between 1990 and 2015. According to the report, 51 of these projects were in the transport sector and were made up primarily of under-used toll roads. A further 16 were port projects while social infrastructure projects were noted to have substantially lower default rates.
The report also assessed the importance of jurisdiction, noting the factor matters a lot in the initial years of a project but tends to have less of an influence once an operating track record has been demonstrated.
Moody’s admitted that many loans within the data set are yet to reach maturity, which limits its ability to assess changes in default or recovery.