Asset reconstruction companies (ARCs) are set to see cumulative recovery rates for stressed operational road projects double to approximately 120% by fiscal 2027 from fiscal 2025 levels, driven by timely annuity payments from the National Highways Authority of India (NHAI), healthy toll collections, and resolutions through the Insolvency and Bankruptcy Code (IBC), according to Crisil Ratings.
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 crores and 1,000 lane km of terminated road projects with total SRs issued of Rs 3,000 crores shows the projected improvement. ARCs are also targeting terminated assets, relying on collaborative efforts by multiple stakeholders for timely recoveries.
Most operational road projects under the build-operate-transfer (BOT) model faced stress between fiscals 2017 and 2019 due to construction delays and cost overruns from difficulties in land acquisition and obtaining Right of Way (ROW). These were acquired by ARCs between 2019-2022 at haircuts of approximately 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 reduced debt levels. Timely annuity payments and healthy toll collections have improved the liquidity profile of these assets. The debt to annuity ratio declined from 0.57 in fiscal 2024 to 0.33 times in fiscal 2025, while the debt to toll ratio reduced from 4.90 to 4.76 times over the same period for the rated portfolio.
Mohit Makhija, Senior Director, Crisil Ratings, said, “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 twelve to eighteen months compared to earlier estimates; thereby doubling the cumulative recovery rate to above 120% by fiscal 2027 for our rated operational assets.”
ARCs are now eyeing terminated road assets to augment their acquisition pipeline. Unlike operational road assets that benefit from ongoing toll and annuities, recovery in terminated road assets depends on legal mechanisms such as conciliation with authorities and arbitration. NHAI’s conciliation mechanism resolved claims worth Rs 35,000 crore between fiscal 2022 to 2024 compared to Rs 24,000 crore between fiscal 2019 to 2021.
Tanvi Fifadra, Associate Director, Crisil Ratings, said, “The resolution of outstanding claims worth approximately ₹40,000 crores 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 realization of arbitration awards, can be enablers for resurgence of recovery for these terminated assets.”
The improving trend is expected to sustain in the next fiscal year, driven by 4-5% increase in traffic growth. IBC has aided resolution of 11 road projects cumulatively until fiscal 2025, with an average recovery of approximately 60% on admitted claims worth Rs 6,000 crores.
Timelines and acceptance of conciliation payouts, continued NHAI support, arbitration award execution timelines, and steady traffic growth remain key factors to monitor.`