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The CRISIL Ratings in its latest report has said that asset reconstruction companies (ARCs) will see their cumulative recovery rate for stressed road projects rise 700-1,000 basis points (bps) this fiscal (FY25) after doubling to 50-55% last fiscal. This will be driven by faster completion or descoping of pending construction resulting in start of annuities by the National Highways Authority of India (NHAI), thereby enabling quicker resolutions or restructuring of debt. Further, a healthy increase in toll collections should also support recoveries.

An analysis of the security receipts (SRs) rated by CRISIL Ratings, covering around 2,500 lane km of underlying stressed road projects with total principal debt of around Rs 6,000 crore (60% of road assets with ARCs) indicates as much. These encompass projects under build operate and transfer model (toll assets) and hybrid annuity model under NHAI which were acquired at average haircut of 40% by ARCs. Most of the projects in the CRISIL Ratings SR portfolio had turned stressed between 2017 and 2019 due to delays in land acquisition and obtaining Right of Way (RoW) by government and/or lower toll collection than initially estimated. Of these, half have seen completion of construction while descoping of pending RoW was done for rest of the assets. 

Analysing these projects now reveals that stabilising annuity payments due to faster completion of pending work or descoping of pending RoW post-acquisition by ARCs have improved liquidity for them with annuity payments adequate for servicing of restructured debt. Furthermore, traffic growth for toll assets is likely to hold steady at 4-6% this fiscal with healthy macroeconomic markers (growth in industrial capex, rapid urbanisation, rising exports and tourism). This should lead to a growth of 7-9% in toll revenues this fiscal which will support the recoveries from such roads.