Asset reconstruction companies (ARCs) are poised to see a strong step-up in cumulative recovery rates for stressed operational road projects, with recovery rates doubling to 120% by next fiscal from fiscal 2025 levels, Crisil Ratings said in its latest note. "This will ride on timely annuity payments by the National Highways Authority of India (NHAI), healthy toll collections and resolutions through the Insolvency and Bankruptcy Code (IBC)."  

Further, having gained substantial capabilities in the road sector, ARCs are also eyeing the acquisition of terminated assets, banking on collaborative efforts by multiple stakeholders to pave the way for timely recoveries. An analysis of Crisil Ratings rated 2,500 lane km of stressed operational road projects, with total security receipts (SRs) issued of Rs 3,200 crore, and 1,000 lane km of terminated road projects with total SRs issued of Rs 3,000 crore, indicates as much.  

The Crisil data shows that a majority of operational road projects, primarily under the build-operate-transfer (BOT) model, faced stress between fiscals 2017 and 2019 on account of construction delays and cost overruns owing to difficulties in land acquisition and obtaining Right of Way (ROW).  

These were consequently acquired by ARCs between 2019–2022 at sizeable haircuts of 44% on principal outstanding debt. "With traffic growing at a CAGR of 9% between fiscals 2022-25, descoping of pending ROW and completion of delayed construction, these projects became viable at the reduced debt levels."  

Further, timely annuity payments and healthy toll collections have improved the liquidity profile of these assets. “This is demonstrated in the debt to annuity ratio declining from 0.57 in fiscal 2024 to 0.33 times in fiscal 2025, and the debt to toll ratio reducing from 4.90 to 4.76 times over the same period for our rated portfolio. This improving trend is expected to sustain next fiscal as well, driven by a 4-5% increase in traffic growth.”  

Mohit Makhija, Senior Director, Crisil Ratings, “Prudent valuation at the time of acquisition by ARCs combined with healthy toll collections and stable annuity payments is enhancing the attractiveness of operational road assets for refinance and takeover by stronger sponsors through the Insolvency and Bankruptcy Code (IBC).”  

This, in turn, is accelerating recoveries for ARCs by 12 to 8 months compared to earlier estimates; thereby doubling the cumulative recovery rate to above 120% by fiscal 2027 for our rated operational assets. 

Tanvi Fifadra, Associate Director, Crisil Ratings, says the resolution of outstanding claims worth around ₹40,000 crore in Crisil-rated terminated road assets is contingent upon the collaborative efforts of ARCs, NHAI, and developers. “A concerted approach, including the right sizing of debt at the time of acquisition by ARCs, improvement in the pace of conciliation between NHAI and developers, coupled with timely realisation of arbitration awards, can be enablers for the resurgence of recovery for these terminated assets."