CARE downgrades Srei Infra, GMR Infra's Hyderabad SPV

Rating Agency CARE has downgraded its long-term bond and debenture ratings of infra companies' Srei Infra and GMR Infra’s Hyderabad-Vijaywada Expressway special purpose vehicle (SPV). A rise in non-performing and restructured assets is the main reason for downgrade for Srei, Arindam Saha of CARE Ratings told CNBC-TV18. Subdued activities in the infrastructure sector as well as certain unyielding investments made by the company impacted growth, Saha said. However, with pick-up in government spending and improvement in infrastructure projects, he expects the company’s asset quality to improve. The rating agency has also downgraded GMR Infra’s Hyderabad-Vijayawada Expressway project rating to D from BBB-. Delays in servicing debt obligations and cash flow shortage are the main reasons for the downgrade, said Karthik Raj of the agency. The company's Hyderabad-Vijayawada highway project has been suffering losses for the last two years and lower than expected toll revenue has added to its losses, Raj said.Below is the transcript of Arindam Saha's interview with CNBC-TV18's Ekta Batra and Reema Tendulkar.Ekta: Just to continue on that in that case what do you think is the risk to SREI Infra's asset quality considering that you cited the increase in the Gross Non-Performing Assets (NPA) that have taken place in the past couple of years?Saha: Actually what happens the asset quality whatever with the deterioration in FY15 is observed it is basically due to the subdued Indian economic environment and particularly the infrastructure space which is hit. So, what we feel is that with the improvement in the economic environment and the infrastructure space with lot of government spending coming in this sector, in the road sector, in the mining sector will now be opened up. So, the asset quality we feel that will be improving over the quarters.Reema: When you talk of group's exposure what exactly are you referring to?Saha: Group exposure means the exposure of the company which have made into its various subsidiaries, joint ventures and also they had made some strategic investments. So, basically group exposure means they had a Quippo group of companies where they had invested Quippo oil and gas, Quippo energy and also they had Attivo Economic Zone. They had also invested there and in Sahaj also. So, these are the companies where the company has invested. It is a long gestation and they are yet to divest these investments and these investments are yet to yield any results till date.Ekta: According to you which segment in SREI Infra is posing a risk to earnings in your opinion. For example, is it the slowdown in say, construction equipment that they have?Saha: Basically slowdown in the construction equipment because of the infrastructure space. This segment is hardly hit.