ICRA launches ratings for infra sector

The expected loss quotient would be worked out through a combined rating approach

ICRA has launched a credit rating system to address the inherent uncertainties in infrastructure projects. The system is based on a new matrix that follows a linear rating scale to retain the probability of default approach in the current rating system and integrate the same with recovery prospects. 

The expected loss (EL) quotient would be worked out through a combined rating approach. The highest rating of EL1 will be given to a project with the lowest EL range of below 1.25 per cent. There will be seven levels of rating. The EL will be calculated over a defined period and would be linked to the tenure of the instrument to be rated.

The EL-based rating is applicable only during the post-commissioning stage. Conventional ratings will continue to stay, and issuers can opt for the new one with dual ratings. The ratings will be available to all the five infrastructure verticals — transport, energy, water and sanitation, communication, and social and commercial infrastructure — notified by the ministry of finance.

E S Rao, chief general manager, India Infrastructure Finance Company Ltd, said the ratings would be offered by all rating agencies. Rao said a separate rating for infrastructure was required as the sector was not cyclical, like manufacturing.  “It is a product which allows to differentiate based on viability of projects,” said Naresh Takkar, managing director and group CEO, ICRA. IIFCL was involved with ICRA in designing the rating system.

The ratings will be applied on project companies or special purpose vehicles and reviewed on a regular basis.

The project default aspect of the rating scale will focus on timelines of repayment in conventional manner. The recovery prospect will capture overall project viability over its life, based on expected level of indebtedness, type and structure of debt and various inbuilt safeguards available for infrastructure projects. 

The new system would take into account the likely recovery of dues by investor/lender over the loan tenure, keeping in mind the economic life of the project. 

Takkar said in a situation where capital was a constraint and funding largely dependent on banks, the ratings would help in capital-raising through the non-banking routes. It will meet the needs of long-term investors like sovereign funds, pension funds.

Shubham Jain, vice-president and sector head, corporate ratings, ICRA, said lending in the infrastructure sector was led by banks and non-banking financial institutions. 

According to ICRA estimates, Rs 30 lakh crore was invested in the infrastructure sector of which about Rs 11 lakh crore came by way of debt. “Most ratings in the infrastructure sector (about 7-7 per cent) are below triple B, which is below investment grade. That is the reason that bond market exposure to the infrastructure sector is low.”