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Press Release: S&PGR: India's Progress In Fixing Infra Gaps May Be At Risk

30 Jul 2018 5:00 am
The following is a press release from S&P Global Ratings: 
SINGAPORE (S&P Global Ratings) July 30, 2018--India is making progress at 
scaling up its infrastructure, but still has a long way to go before it can 
close the sizable deficit between supply and demand. That's according to an 
article that S&P Global Ratings released today, titled "India's Infrastructure 
Marathon: Why Steady Growth Can't Close The Supply Gap." 
"India's infrastructure deficit is simply too large to eliminate any time 
soon," said S&P Global Ratings credit analyst Abhishek Dangra. "Infrastructure 
takes time to build, and perhaps more so in India than for many other 
The Indian government estimates infrastructure investment of US$4.5 trillion 
will be needed through 2040. Project delays and cost overruns are attributable 
to complex land acquisitions and environmental issues. And in all democracies, 
societal considerations play a part, too. 
The country's progress at scaling up its infrastructure is shown in its 
decreasing power deficits, high passenger growth for airports, rising 
renewable capacity, and large metro train projects in progress. The government 
is leading the buildup in view of growing urbanization. 
"We believe the power sector is moving towards equilibrium in demand and 
supply from a deficit situation. However, fortunes will vary for thermal and 
renewables," said Mr. Dangra. "No more new thermal power capacity is required 
until 2027, other than for projects already under construction; while 
renewables will continue their strong growth based on competitive tariffs." 
The report says that capital expenditure (capex) will remain high for Indian 
infrastructure players across sectors. However, leverage trends vary. Rated 
utilities will likely maintain elevated capex, but the commissioning of new 
capacities and regulated returns on investment should increase earnings. As a 
result, we expect the segment to deleverage. Renewables will likely continue 
to incur significant growth capex and maintain weaker credit metrics, with an 
average ratio of funds from operations to debt of below 9%. 
The infrastructure sector has high correlation with the overall economic 
environment. Macroeconomic roadblocks could strain the government's budget or 
reduce project returns for the private sector. These risks include currency 
weakness, global trade protectionism, and rising inflationary strains that 
could push up interest rates. Elections scheduled for 2019 could also fuel 
political and policy uncertainty. 
"The intensity and duration of macro shocks will be key to their overall 
impact," said Mr. Dangra. "We still believe that India's economic growth 
opportunities and the viability of projects should continue to attract 
Regulations significantly affect cash flows and consequently investor 
interest. Under their long-established framework, regulated utilities have 
full pass-through of costs and benefit from a stable framework for over two 
decades. Other sectors lack a long track record or an established framework; 
for instance, airports face long delays in implementation of tariffs and 
ambiguity in tariff components. 
Investors generally prefer sectors where regulations (like regulated 
utilities) or growth prospects (airports and renewables) provide greater 
visibility on cash flows. For other sectors like railways (including bullet 
trains), government spending and government-to-government loans may remain the 
key source of funding. 
This report does not constitute a rating action. 
The reports are available to subscribers of RatingsDirect at 
www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase 
copies of these reports by calling (1) 212-438-7280 or sending an e-mail to 
research_request@spglobal.com. Ratings information can also be found on S&P 
Global Ratings' public website by using the Ratings search box located in the 
left column at www.standardandpoors.com. Members of the media may request 
copies of these reports by contacting the media representative provided. 
Primary Credit Analyst: Abhishek Dangra, FRM, Singapore (65) 6216-1121; 
Secondary Contact: Richard M Langberg, Hong Kong +  852 2533 3516; 
Media Contacts: Richard J Noonan, Melbourne (61) 3-9631-2152; 
                Chris Davis, Hong Kong (852) 2533-3511; 
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(END) Dow Jones Newswires

July 30, 2018 01:00 ET (05:00 GMT)
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