INFRA PROJECTS TO GET A RATING SYSTEM SOON

The Centre plans to introduce a new credit

rating system for infrastructure. The finance ministry is reviewing the final project report on the rating system. The announcement is likely to be part of the forthcoming Budget. To begin with, the rating system is being introduced only for the operational projects, write AMRITHA PILLAY & JYOTI MUKUL

The government plans to introduce a new credit rating system for infrastructure. The finance ministry is reviewing the final project report on the rating system.

The announcement is likely to be part of the forthcoming Union Budget. “To begin with, the rating system is being introduced only for the operational projects. Projects post commissioning date will be eligible for such ratings,” said a person close to the development. In the early phase of discussions, the ministry had considered including both operational and non-operational infrastructure projects in the rating system, but later decided against it.

The parameters and definitions are different and cannot be compared to the banking rating system. The current system of rating debt in a range of triple “AAA” to “D” ratings has also been tweaked in the new scale. The finance minister in his Budget speech last year had said the government will come out with a rating system for projects.

The new system was to give emphasis to various inbuilt credit enhancement structures instead of relying upon a standard perception of risk which may result in mispriced loans due to a lower credit rating.

“The project report is with the finance ministry and an announcement on it is likely,” said a second person with direct knowledge on the development who did not wish to be identified.

Officials said views of the Securities and Exchange Board of India (Sebi) was being sought.

Most infrastructure projects are heavily debt funded and lack the desirable debt quality in the initial years of operations because of a long gestation period. The new credit rating system for infrastructure projects aims to help these access credit facilities at better rates.

The system is also expected to open up multiple options to developers with a focus on bringing in longterm financial investors such as pension and insurance firms.

Pension and insurance firms prefer to park money in debt instruments with a higher rating, which infrastructure-related

I would like to announce new initiatives to reinvigorate infra sector... A new credit rating system for infrastructure projects will give emphasis to various in-built credit enhancement structures… instead of relying upon a standard perception of risk which often results in mispriced loans ARUN JAITLEY, FM’s 2016 Budget speech