An analysis of the data sourced from four domestic rating agencies in the country shows at least 26 companies in the infrastructure and power segments were assigned a default rating since January 2018. The combined rated debt exposure was at Rs 148.35 billion, with reasons for default ranging from termination of contracts, delay in right of way, stretched receivable cycle, and financial stress in the company.
The data was sourced from CARE Ratings, Icra, CRISIL, and India Ratings, for the current calendar year.
While one may expect defaults in the power sector to belong to conventional sources, the data suggests there are defaults in the renewable energy space. Of the 26 companies, at least 10 companies were from the solar and wind energy space.
“The current trend is similar to what we had seen in the thermal sector some years back. Generation companies in India continue to face collection issues from distribution companies (discoms) that results in significantly long working capital cycles. The same issue is getting passed on to the engineering companies in the (renewables) sector,” said Abhishek Poddar, partner (energy and process industries), AT Kearney.
He added that companies were finding it difficult to manage cash flows as their costs and outflows are more or less fixed. “This, coupled with the fact that margins in the renewables services space have shrunk significantly, is resulting in defaults by some of the weaker players,” he said.
However, industry experts said this trend in the renewables space should not be a source of worry till it remains confined to power generators. They added that it was unlikely for renewable energy producers to default on payments as the reputation of big private equity firms backing them is at stake. If bigger defaults in the renewables space were to happen, they would be in the equipment and engineering space.
ReGen Powertech, Bhoruka Power Corporation, RRB Energy, and Blyth Wind Park were some of the names on the list from the renewables sector. The list of fresh defaults also includes prominent listed entities from the infrastructure segment. For instance, a default rating was assigned to Gayatri Projects’ Sai Maatarini Tollways, IL&FS Transportation and Networks (ITNL)’s five project special purpose vehicles, and Reliance Infrastructure.
According to the data sourced from CRISIL Ratings, 44 companies in the infrastructure and construction space, that it rates, have an outstanding rating of ‘D’. Of these, eight companies were downgraded to ‘D’ in the last six months. “These are primarily small engineering, procurement and construction (EPC) firms which were earlier rated in the ‘B’ rating category,” CRISIL said in its response. The rating agency said the financial stress in these EPC companies has been due to strained liquidity caused by a stretch in the receivable cycle.
Shubham Jain, vice-president and group head for corporate ratings for Icra, said, “We continue to see defaults in infrastructure sector, especially from groups with legacy issues such as stalled build-operate-transfer projects, sticky receivables, pending large claims, etc. Further, the loan refinancing is becoming increasingly difficult on account of regulatory changes and lenders’ cautious approach due to high NPAs from the sector.”