Stable outlook for Indian infrastructure and project finance in 2010: Fitch

The credit outlook for the Indian infrastructure sector is Stable, reports ratings agency Fitch, in a new report on the sector, Indian Infrastructure Outlook 2010 - The Accommodation of Project Risk.

The Stable Outlook factors in the different factors influencing projects that are still in construction phase and for those that are currently in operation. The ratings of Fitch-rated projects in India, especially for those under construction, are at low levels.

Construction delays continue to be a major irritant, which stems from a number of factors outside the control of project sponsors. These include, land acquisitions and regulatory approvals, which can delay the timely completion of projects.

In the absence of rigorous adherence to contractual provisions, project companies and sponsors have had to take on the burden of additional costs, either through the drawdown of available cash, the raising of equity, and / or the issuance of debt.

However, government authorities responsible for granting concessions also seemed willing to extend the schedule for project delivery. "Furthermore, banks also recognise these systemic constraints, and seem to be willing to reschedule project loans by postponing commencement of principal moratorium," says William Streeter, managing director and head of global infrastructure and project finance, Asia Pacific.

Fitch notes that this spirit of accommodation / adjustment (or 'jugaad') adopted by various project counterparties (including sponsors, bankers, contractors and the government) has prevented large-scale rating downgrades.