Road infrastructure development under PPP model in India: a credit rating perspective

Purpose The study analyzes significant parameters defining the credit worthiness, economic viability and managerial efficiency of special purpose vehicles (SPVs) of infrastructure development firms engaged in the execution of road projects under PPP model in India. Design/methodology/approach The study is based on a comprehensive review of credit rating reports of major rating agencies. In particular, 18 special purpose vehicles (13 BOT-toll–based and 5 BOT-annuity–based road projects) during the period 2010–2019 were considered to conduct a comparative analysis of their rating progression. Considering both financial as well as nonfinancial parameters, their segregation was done on the basis of strengths, constraints and key rating sensitivities influencing the ratings of SPVs involved in road projects under PPP model. Findings Promoters' credibility emerged as an important factor affecting PPP credit ratings. Other prominent factors included nature of stretch and regulatory terms and conditions and the project's potential to generate cash flows. Inability of PPP projects to generate the projected levels of toll collections was a major constraint and hampered ratings over time. Growth in traffic was a key sensitive area in a toll-based project. Interestingly, despite the fixed nature of revenues, BOT (annuity) projects were impacted by rating changes. Research limitations/implications Fewer sample projects (for which the data were available) was a constraint. Future research could consider larger data sets to provide deeper insights. An examination of credit rating parameters using rating reports of projects in other developing nations could provide meaningful implications. The findings of this research however cannot be undermined as the study bridges a gap in existing literature pertaining to the examination of PPP model from a credit rating perspective. Practical implications This study would guide project developers, government agencies and awarding agencies of PPP road projects to anticipate the challenges and take adequate steps to mitigate them. Originality/value Research in the area of PPP projects is skewed toward risk assessment with respect to financial parameters. The present study emphasizes the rating framework of SPVs. Comprehensive examination of factors affecting project ratings in the form of projects' strengths, constraints and sensitivities would provide inputs to academics and researchers.