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Explained | How the resurgence of COVID-19 will hit the government's asset monetisation plans for road and aviation

A fall in the speed of construction, work-from-home and lockdown restrictions is expected to hit valuations and market interest, attributable to a drop in the utilization of highways and airways

April 27, 2021 / 07:21 AM IST
A worker is seen inside the Lusail stadium which is under construction for the upcoming 2022 Fifa soccer World Cup during a stadium tour in Doha, Qatar, December 20, 2019.  REUTERS/Kai Pfaffenbach - RC2XYD9BH4F2

A worker is seen inside the Lusail stadium which is under construction for the upcoming 2022 Fifa soccer World Cup during a stadium tour in Doha, Qatar, December 20, 2019. REUTERS/Kai Pfaffenbach - RC2XYD9BH4F2

For the second year running, the resurgence of the COVID-19 pandemic in the country has created considerable uncertainty over the state of the Indian economy, particularly its aviation and the road sector.

What’s bad is that the uncertainty doesn’t seem to be going away in a hurry, with India adding more than 300,000 coronavirus cases every day.

The resurgence of the pandemic has not just overwhelmed the nation’s hospitals and crematoriums; it’s also hit consumer confidence in an economy that was only beginning to recover from an unprecedented recession last year.

Curfews and lockdowns in parts of the country, travel restrictions, social distancing norms and curb in construction activities are all expected to hit the economy, in particular, the country's road and aviation industry.

A fall in the speed of construction, work-from-home and lockdown restrictions may hit the valuations and market interest in the country’s road and aviation industry due to a fall in the utilization of roads and airways.

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The impact of the COVID-19 pandemic may also play a spoilsport to the central government’s plans to raise funds by divesting its assets.


The impact of the relentless surge in COVID-19 cases is directly visible on the country’s aviation industry, as bookings have plummeted by up to half on many routes.

The passenger load of airlines is also hovering below 60 percent, and carriers have already been forced to pull out some capacity.

The slowdown may also affect the Ministry of Civil Aviation’s asset monetization plans.

Air travel restrictions, currently imposed both on domestic and international routes, coupled with lower bookings and passenger loads, is likely to hit the valuation of national carrier Air India, which the government plans to sell in this financial year.

The government expects to privatize national carrier Air India at a much lower valuation than what it was hoping for in the pre-pandemic days, say market watchers.

That’s just one. The Ministry of Civil Aviation’s plans to sell Airports Authority of India’s stake in the joint venture airports of Delhi, Mumbai, Bangalore, and Hyderabad and also monetize 13 other airports in 2021-22 (April-March), too, maybe impacted.

“The uncertainty around the global aviation industry due to the pandemic has led to a fall in investment in the sector, as travel routes are expected to remain muted when compared to 2019-20 (April-March) in terms of passenger load factor (PLF) for the next two years,” a market expert said.

He added that lower capacity utilization and subdued passenger traffic coupled with airlines looking to strengthen their balance sheets may keep investments subdued in the sector until the pandemic passes.

The government’s plan to monetize airports is also expected to fetch lower biddings, than earlier expected.

Said a Mumbai-based fundamental analyst: “Unless the central government is willing to sell its assets at lower valuations, it is unlikely that private participants would invest heavily to develop new airports.”

In addition, a fall in the valuations of airlines’ assets may also impact the ability of airline operators to raise funds.

According to Fitch Ratings, the market value of 10-year-old wide-body aircraft like Boeing 777 has declined by 27 percent while that of a 10-year-old narrow body like Boeing 737 and Airbus A320 aircraft has come down by 16 percent in the past year.


A fall in construction activities due to stringent COVID-19 curbs imposed across parts of the country, coupled with an expected dip in toll collection, has left the country’s road sector in a fix, yet again.

While the resurgence of the COVID-19 pandemic is not just likely to impact the speed of highway construction and hit toll collection, it is also expected to dent the government’s asset monetization plans.

According to ICRA's estimates, the prevailing uncertainty and the consequent impact on valuations could delay the asset monetization plan of the National Highways Authority of India (NHAI) through toll-operate-transfer auctions and launch of Infrastructure Investment Trust (InvIT).

“If the state lockdowns, curbs on construction and COVID-19 situation persist like last year, we expect a fall in the investments going into the country’s road sector again,” predicted the Mumbai-based fundamental analyst.

The impact of the pandemic is first expected on the NHAI’s first tranche of Infrastructure Investment Trusts, market participants and experts said.

“All eyes will be on the market interest for NHAI’s InvIT, which is expected to be launched by the end of May. If normalcy in construction and toll collection is not restored by then, the valuations of the InvIt will take a hit,” said another Mumbai-based fundamental analyst.

The National Highways Builders Federation has also said that there has been a drop in traffic as various states have ordered a lockdown.

This has worsened the situation for highway developers and operators, who are still recovering from a tough 2020-21, when construction activities and toll collection had taken a hit in the first five months due to the national lockdown to control the spread of the COVID-19 pandemic.

Last year, toll collections across national highways had dipped around 50 percent in the first one week of the national lockdown, while highway construction had fallen around 60 percent in April and May.

While the impact of lockdown in 2021 is not expected to be so severe, brokerages and market research firms still expect a 10-15 percent fall in toll collection and a 30 percent fall in construction activity.

Yaruqhullah Khan
first published: Apr 26, 2021 02:44 pm