Highly leveraged infrastructure companies are seeking to unburden themselves from committed, or even partially completed, projects even as they realise that disposing of assets at this time would amount to distress sale. The phenomenon is most visible in the highways sector, but there are several instances of developers wanting to exit power and port projects and one where a leading company has dumped a seemingly lucrative metro rail network. The economic slowdown, which upset the revenue calculations of these firms, coupled with the high cost of credit, are at the core of the issue, but there have also been a host of other factors that have dampened investor sentiment and forced firms to cut down on their plans.
Less-than-anticipated returns, fuel scarcity (as in the power sector), inability of the government to make available land and fashion suitable model concession agreement in time (witness the projects awarded by port trusts) and the delays in clearances leading to huge cost overruns, too, have made projects unattractive to investors of all hues.
In the highways sector, GMR, GVK and Ashoka Buildcon have terminated their agreement with NHAI and moved out of highway projects -- supposedly premium ones originally. Many more companies are also wanting to make an exit from projects, which are either midway the concession period or have just been completed (see chart). A new exit policy announced by the government to enable developers to unlock value expeditiously and invest in new projects is seen as a part-solution in the highways sector.
As for the power sector, developers are struggling to get fuel linkages and facing difficulties in mobilising resources from the capital market. Saddled with debt, many private power companies would like to sell stakes in their existing plants to raise money to finance their new projects. However, problems like fuel shortages have dented power companies' valuations, forcing developers to postpone asset sale until market improves. A case in point is Lanco Infratech's recent move to approach the RBI's CDR Cell for the restructuring of R7,500 crore of outstanding