Advertisement

Construction sector may revive with ease of project funding: ICRA

Measures like ease of FDI norms, liberalisation of ECB policy and incentives to promote REITs and InvITs can revive project funding for construction sector

Construction

MUMBAI, Apr 21: The recent government initiatives with regards to project funding, including opening up of FDI in the construction sector and introduction of InvITs, are likely to revive the industry, credit rating firm ICRA said. "The construction sector is likely to get a major boost from the government's focus on development of infrastructure in India," ICRA Senior VP Rohit Inamdar said in a statement. The government has taken key policy measures such as the easing of FDI norms for construction, railways and defence, liberalisation of ECB policy and providing incentives to promote REITs (Real Estate Investment Trust) and InvITs (Infrastructure Investment Trust). The Reserve Bank has also taken multiple steps to ease funding availability for infrastructure projects. According to ICRA, InvITs could play a pivotal role in providing wider long-term refinancing avenues and thereby providing headroom for banks for new funding requirements. However, the agency observed that while the recovery in the sector was likely, it would be gradual as majority of players are still burdened with leveraged balance sheets and stalled or slow moving projects. "The recovery in the sector is expected to be gradual and would be linked with on-ground impact of the policy measures as well as availability of funding," he said. In addition to this, if structural constraints such as the uncertainty in land acquisition, delay in approvals and the inadequacy of long term funding avenues are not tackled swiftly, the project implementation may not gather momentum, thus delaying recovery in the sector, Inamdar said. Further, aggressive bidding in the past and inability or limited ability to raise equity for BOT projects have also impacted viability of infrastructure projects. These impediments need to be overcome for project implementation to gather pace, the agency said. "With high leverage, ability to raise funds via stake sale in subsidiaries, monetisation of assets or dilution of equity will be key in improving liquidity and capital structure of construction companies that have been aggressive in the BOT space in past," Inamdar said


Tags assigned to this article:
construction ecb fdi icra infrastructure Infrastructure &amp