ARC recoveries from stressed road assets to nearly double next fiscal: Crisil

Recoveries from stressed operational road assets held by asset reconstruction companies (ARCs) are set to nearly double to about 120% by the next fiscal from fiscal 2025 levels, Crisil Ratings said on Wednesday.

According to the agency, the recoveries will be aided by timely annuity payments by the National Highways Authority of India (NHAI), healthy toll collections and faster resolutions under the Insolvency and Bankruptcy Code (IBC)

An analysis of Crisil-rated stressed road assets shows that cumulative recovery rates for operational projects are accelerating, with ARCs benefiting from prudent valuations at the time of acquisition and improving cash flows, the ratings agency said.

Crisil’s analysis covered about 2,500 lane km of stressed operational road projects with security receipts (SRs) of around ₹3,200 crore, and nearly 1,000 lane km of terminated road projects with SRs of about ₹3,000 crore.

Most of the stressed operational projects, largely under the build-operate-transfer (BOT) model, faced stress during fiscals 2017 to 2019 due to construction delays and cost overruns caused by land acquisition and right-of-way issues. These assets were acquired by ARCs between 2019 and 2022 at sizeable haircuts of about 44% on principal outstanding debt.

With traffic growing at a compound annual growth rate of around 9% between fiscals 2022 and 2025, along with descoping of pending right-of-way and completion of delayed construction, the projects have turned viable at lower debt levels. Timely annuity payments and robust toll collections have also strengthened liquidity, Crisil said.

The improvement is reflected in the debt-to-annuity ratio declining to 0.33 times in fiscal 2025 from 0.57 times in fiscal 2024, while the debt-to-toll ratio eased to 4.76 times from 4.90 times over the same period for Crisil’s rated portfolio.

The trend is expected to continue next fiscal, supported by an estimated 4–5% traffic growth.

“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 IBC,” said Mohit Makhija, Senior Director, Crisil Ratings.

“This in turn is accelerating recoveries for ARCs by 12–18 months compared with earlier estimates, thereby doubling the cumulative recovery rate to above 120% by fiscal 2027 for our rated operational assets,” he added.

Buoyed by successful turnarounds and deeper sectoral expertise, ARCs are also eyeing terminated road assets to expand their acquisition pipeline. However, unlike operational projects, recoveries from terminated assets depend largely on legal mechanisms such as conciliation with authorities and arbitration, Crisil said.

NHAI’s conciliation mechanism resolved claims worth about ₹35,000 crore between fiscals 2022 and 2024, compared with around ₹24,000 crore during fiscals 2019 to 2021.

“The resolution of outstanding claims worth around ₹40,000 crore in Crisil-rated terminated road assets hinges on collaborative efforts by ARCs, NHAI and developers,” said Tanvi Fifadra, Associate Director, Crisil Ratings.

She added that right-sizing of debt at acquisition, faster conciliation, and timely realisation of arbitration awards could help revive recoveries in terminated assets.

Crisil said factors such as acceptance and timelines of conciliation payouts, continued NHAI support, execution of arbitration awards and steady traffic growth will be key to sustaining recovery momentum.