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Journalism of Courage
The construction sector is likely to witness further squeeze in order inflow in 2012 as corporates defer capex plan due to higher interest rates and slow economic growth,rating agency Fitch has said.
“Construction firms’ order books showed 15-20 per cent growth in FY’11. Fitch expects order inflows to slow further and order books to remain stagnant in 2012,” it said in a sectoral report.
Capex plans in the corporate sector being deferred due to higher interest rates and inflation and slowing economic growth,Fitch said.
Order inflows from the power sector may also slow,with various banks reaching their internal limits for lending to the sector and the fuel linkage being faced by the sector.
Fitch,however,expects inflows from transportation and infrastructure segments to remain buoyant in 2012 due to continued focus of the government on infrastructure creation.
Meanwhile,Fitch said volatility in stock markets and weakening economic conditions may hamper the fund-raising plan of the construction companies.
“During 2011,funding through IPOs dried up due to a volatile stock market. Several companies raised equity from private equity investors either at parent or intermediate holding company level. Continuing volatility in stock markets and weakening economic conditions may hamper the fund raising plans of companies in the current year,” it said.
Fitch said that aggressive bidding for BOT projects has already lowered equity Internal Rates of Returns (IRRs) earned by developers on such projects. High interest rate scenario prevailing would further impact the IRRs of projects currently under construction/operation.
“This would impact their ability to induct investors at project/intermediate level,” it said.
