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Fitch: Growing Capital Pool Driving Riskier Infrastructure Deals
May 11,2017

The ever-increasing pool of capital allocated to investing in infrastructure will drive a new wave of riskier infrastructure-like transactions that mirrors what was seen in 2007-08, Fitch Ratings says.

Life insurers, fund managers and pension funds are increasing their allocations to infrastructure transactions as they seek out stable returns from real assets. Our conversations with investors suggest this trend will continue. However, years of austerity measures in many countries has resulted in a very limited flow of new traditional infrastructure projects, as in some cases privatisations have already been done or budgets are limited for PPP-like activity.

So far, investors have focused on buying and refinancing existing assets, which, given the level of competition, has led to higher multiples being paid for assets, but not necessarily the higher gearing seen in the past. This is because the emergence of long-term infrastructure private equity investors since 2007-08 has helped change the market.

These investors are more aligned with debt investors in looking at the long-term stability of a business and thus keeping leverage within manageable levels. Previously, some short-term infrastructure equity investors were structuring highly-leveraged transactions and expecting underlying asset improvement together with more favourable debt terms, enabling them to refinance transactions within five years and improve equity returns.

Now, we are starting to see growth of transactions that are structured like traditional infrastructure investments, but which involve assets not previously considered infrastructure, such as airport services or landing slots. Some market participants refer to this as Asset Class Stretch.

These transactions, which have become a hot topic at industry conferences, are often referred to as infrastructure-like, hybrid infrastructure, infrastructure plus or non-core infrastructure. They are likely to be fundamentally riskier than traditional infrastructure deals (which some now call Super Core Infrastructure) because the underlying asset may be less essential to the public, may not have the same high barriers to entry and may experience more variable costs, together with less sustainable revenue streams. Such financings would likely require lower leverage than more traditional infrastructure projects to achieve investment-grade ratings.

This trend is reminiscent of 2007-08, when transactions involving private hospitals or care homes businesses were being structured in a similar way. While, at inception, they were considered to be essential services, some of these assets were shown to have a higher cost base and insufficiently stable revenue streams, resulting in an inability to sustain the leverage generally associated with infrastructure deals.

However, other innovative assets that emerged at the time, including telecom towers or smart meters, are now considered by some market participants as core infrastructure assets. Therefore, the new flow of infrastructure-like transactions could involve some assets that will be eventually considered core infrastructure assets.

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Indian Railways to Take a Significant Step Towards Providing Rail Connectivity for Chardham Pilgrimage in the State of Uttarakhand
May 11,2017

Taking forward the vision of the Prime Minister of India Shri Narendra Modi to link the Chardham pilgrimage centres through rail connectivity and in keeping with its budgetary commitment, the Indian Railways is taking the significant step to commence the Final Location survey for a single BG line rail connectivity for the Chardham Pilgrimage. Reiterating his commitment to fast-track this rail project, Minister for Railways Shri Suresh Prabhakar Prabhu, to lay the foundation stone for the Final Location Survey For Single Broad Gauge Line Rail Connectivity at a ceremonial program to be held in the presence of Chief Minister of Uttarakhand Shri Trivendra Singh Rawat, as the Chief Guest on the occasion at 12.30 p.m. on 13 May 2017(Saturday) at Badrinath. Union Minister for Agriculture & Farmers Welfare Shri Radha Mohan Singh, and Members of Lok Sabha and Rajya Sabha of the region along with the Members of Legislative Assembly, Uttarakhand are also slated to grace the function with their distinguished presence.

Rail Vikas Nigam Limited (RVNL), a Public Sector Enterprise under Ministry of Railways has been entrusted to undertake the Final Location Survey for rail connectivity to Chardham and Chardham Yatra (Gangotri, Yamunotri, Badrinath & Kedarnath via Dehradun & Karanprayag) in the State of Uttarakhand. As alignment will pass through the rugged mountainous terrain of mighty Himalayas, the Railway has to meet the challenges of railway construction integrating the unique challenges of the terrain and adverse geology along with limits of load, capacity, safety and speed. The four Dhams have their varied and distinctive elevation levels along with unique spiritual significance. The Yamunotri tracing the origin of River Yamuna is situated at 3293 m above Mean Sea Level (MSL) while the Gangotri tracing the origin of River Ganga is situated at 3408 m above MSL. The Kedarnath housing the Shrine of Lord Shiva, is one of the 12 Jyotirlingas at 3583 m above MSL, while Badrinath housing the Shrine of Lord Vishnu is at 3133 m above MSL. The existing railheads or the nearest railway stations to the proposed Chardham connectivity are Doiwala, Rishikesh and Karanprayag (on the upcoming Rishikesh-Karanprayag new rail line under construction by RVNL) at mean MSL ranging from 400-825 m. The proposed Chardham rail line connecting to 2000 m MSL and above will be an engineering challenging feat.

Rail Vikas Nigam Limited has undertaken a Reconnaissance Engineering Survey (REC) in the year 2014-15 of the rail connectivity project and has submitted its report in October 2015, recommending two take-off points one from existing Doiwala station and one from Karanprayag station (under construction). For the Gangotri alignment, the proposed rail link takes off from Doiwala station to connect upto Manneri at 1270 m above MSL marking a route of 131 km via Uttarkashi. For Yamunotri, the alignment is proposed to take off midway from Gangotri link at Uttarkashi making a n++Yn++ connection and terminating at Palar (1265 m above MSL) with a take- off route length of 22 km. For the Kedarnath alignment, the proposed line will take off from proposed Karanprayag station and terminating at Sonprayag(1650 m above MSL) via Saikot with a route length of 99 km. The Badrinath alignment will take off midway from Kedarnath link at Saikot making a n++Yn++ connection and terminating at Joshimath (1733 m above MSL) with a route length of 75 km. As per the Reconnaissance Survey the total route length is 327 km at estimated cost of Rs. 43,292 Cr. The REC Survey recommends 21 new stations, 61 tunnels totaling to 279 km tunnel length and 59 bridges. The alignment will have ruling gradient of 1 in 80 with a maximum degree of curvature of 5 degree.

Chardham, is one of the unique cornerstones of Hindu pilgrimage which is intertwined to mystical and spiritual aspirations of every devout Hindu. Large number of pilgrims flock to Chardham while foreign and domestic tourist are attracted to trekking & sightseeing in the state of Uttarakhand. The Railway envisages bringing in a new era of safe and comfortable travel through this Chardham Rail Connectivity Project. Alongside, Indian Railways through Rail Vikas Nigam Limited is concurrently pursuing its ambitious project of construction of new rail line between Rishikesh and Karanprayag and efforts are underway to fast-track the completion of the project. These rail projects shall add momentum to the progress of the State by connecting far-flung areas besides boosting opportunities for the tourism and economic development. When completed, these rail projects would script their own unique engineering marvels in the history world railways.

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Moodys: Asia Pacific non-financial corporate rating trend stabilizing
May 11,2017

Moodys Investors Service says that the outlook on the ratings for Asia Pacific non-financial corporates in Moodys portfolio is stabilizing, with the share of ratings with negative implications falling to 26% at 31 March 2017 from 29% at 31 December 2016.

In fact 1Q 2017 marked the first time since 2Q 2015 that the number of positive rating actions outpaced negative actions, says Clara Lau, a Moodys Group Credit Officer.

During 1Q 2017, there were 22 positive versus 19 negative rating actions. Excluding sovereign-related actions, total positive and negative actions were almost at par, with 18 positive and 19 negative actions. This situation is a notable improvement from that in 2016, when there were 48 positive versus 148 negative rating actions.

The stabilizing trend reflects modest but stable global growth, on-target China economic growth, the bottoming of most commodity prices, and the continued access to market liquidity for Asian corporates, adds Lau.

Moodys report says that metals & mining issuers remained the most pressured, as reflected by the over 40% share of ratings for these companies with negative implications despite the bottoming of most commodity prices.

By region, Chinese corporates accounted for nine of the 22 positive rating actions in 1Q 2017, followed by Indonesian corporates, at five. For the 19 negative actions, eight involved Chinese corporates.

By industry, property developers were the active contributors to total rating actions, with five positive and six negative actions.

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Moodys: Asian Liquidity Stress Index improves to lowest level since August 2015
May 11,2017

Moodys Investors Service says that its Asian Liquidity Stress Index (Asian LSI) has fallen for a fifth consecutive month, registering 25.4% in April 2017 from 26.8% in March 2017.

Moodys Asian LSI measures the percentage of high-yield companies with the weakest speculative-grade liquidity score of SGL-4, and increases when speculative-grade liquidity appears to deteriorate.

The strong high-yield issuance momentum continued in April 2017, with Moodys-rated high-yield issuance totaling $3.2 billion during the month, says Annalisa Di Chiara, a Moodys Vice President and Senior Credit Officer. The majority of the bond proceeds has been used for refinancing upcoming maturities, supporting some of the improvement in the Asian LSI.

Year-to-date bond issuance of $13.2 billion is at the strongest level for comparable periods since 2013.

However, despite five straight months of improvement, the Asian LSI reading remains above the long-term average of 22.8%, highlighting ongoing weakness in liquidity for many companies in Asia, adds Di Chiara.

The liquidity stress sub-index for North Asian high-yield companies fell to 25.0% in April 2017 from 26.6% in March 2017. Within this portfolio, the Chinese sub-index fell to 25.7% from 27.5%. And, the Chinese high-yield property sub-index fell to 10.0% from 12.5%, its lowest level since October 2011. The Chinese high-yield industrial sub-index fell to 46.7% from 48.3%.

The liquidity stress sub-index for South and Southeast Asian high-yield companies dropped to 26.1% in April 2017 from 27.3% in March 2017, with the Indonesian sub-index falling to 22.7% from 23.8%.

Moodys report points out that the number of Moodys-rated high-yield companies with Moodys weakest speculative-grade liquidity score of SGL-4 fell to 32 in April 2017 from 33 in March 2017, while the total number of rated high-yield companies increased to 126 from 123 during the same period.

At end-April 2017, Moodys rated 126 speculative-grade non-financial corporates in Asia n++ excluding Japan and Australia n++ with rated debt of $69.7 billion.

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Remove novel hardware, requirement in prevailing CRI guidelines: ASSOCHAM plea
May 11,2017

Apex industry body ASSOCHAM has urged the Prime Minister Narendra Modi for bringing out appropriate amendments to the prevailing computer related invention (CRI) guidelines that have led to an instable and unpredictable environment in Indias information, communication and technology (ICT) sector.

n++The present CRI guidelines have put a blanket ban on patenting of computer related inventions unless a novel hardware, is also invented thereby impacting the entire ICT sector and allied industries that contribute immensely to Indias gross domestic product (GDP) and generate significant employment,n++ highlighted ASSOCHAM in a communication addressed to Mr Nripendra Misra, Principal Secretary in the PMO (Prime Ministers Office).

n++The lack of intellectual property (IP) protection opportunities in the area of CRI will not only effect investment but will also have a direct impact on employment and job growth related opportunities in the ICT industry,n++ said ASSOCHAM secretary general, Mr D.S. Rawat.

n++For India, to become a leading global player in areas of research and development (R&D) and software products, it is imperative that IP protection is made available at par with global standards,n++ said Mr Rawat.

The ASSOCHAM letter also highlighted how the PM recently launched BHIM-Adhaar app aiming to bring about innovation for digital payments and recommended that such technology be patented.

n++It is abundantly clear that prevailing guidelines are not aligned to Digital India, initiative and are also not in compliance with Indian Patent Law and Indian Judicial Dictum,n++ it added.

As such presently the CRI guidelines do not support objectives of various schemes launched by the government.

The contribution of industrial sector to Indias GDP is close to 25 per cent and this is all applied research utilising well established scientific principles, mathematical formulas and algorithms to research into its practical industrial application but the CRI guidelines place complete restriction on patenting of the same.

Thus entire 25 per cent of its contribution to countrys GDP is now at stake due to the prevailing scenario vis-n++-vis CRI guidelines, noted the ASSOCHAM letter.

Further, it is rare to invent any improvements of new product without the use of software as all the forefronts of new technologies be it robotics, internet of things, ICT, cloud technology, genomics and renewable or alternative energy are implemented by software and such inventions are patentable outside but not in India.

n++Therefore, investors will not be encouraged to make inventions in India and even start-ups will not be encouraged and motivated to innovate in India if we continue with the present CRI guidelines released in February 2016 and it will be death knell to all software implemented innovations in India,n++ highlighted ASSOCHAM.

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Gartner Says Artificial Intelligence Could Turn Some Skilled Practices Into Utilities
May 10,2017

CIOs have a major role to play in preparing businesses for the impact that artificial intelligence (AI) will have on business strategy and human employment, according to Gartner, Inc. Gartner predicts that by 2022, smart machines and robots may replace highly trained professionals in tasks within medicine, law and IT.

The economics of AI and machine learning will lead to many tasks performed by professionals today becoming low-cost utilities, said Stephen Prentice, vice president and Gartner Fellow. AIs effects on different industries will force the enterprise to adjust its business strategy. Many competitive, high-margin industries will become more like utilities as AI turns complex work into a metered service that the enterprise pays for, like electricity.

The effects that AI will have on the enterprise will depend on its industry, business, organization and customers. Mr. Prentice cited the example of a lawyer who undergoes a long, expensive period of education and training. Any enterprise that hires lawyers must pay salary and benefits big enough to compensate for this training for each successive lawyer it hires. On the other hand, a smart machine that substitutes for a lawyer also requires a long, expensive period of training. But after the first smart machine, the enterprise can add as many other smart machines as it wants for little extra cost.

Financial services is another industry where jobs such as loan origination and insurance claims adjustment could be automated. However, while AI will hit employment numbers in some industries, many others will benefit as AI and automation handle routine and repetitive tasks, leaving more time for the existing workforce to improve service levels, handle more challenging aspects of the role and even ease stress levels in some high-pressure environments.

CIOs Need to Prepare the Enterprise for Changes in Hiring Priorities

Ultimately, AI and humans will differentiate themselves from each other, said Mr. Prentice. AI is most successful in addressing problems that are reasonably well-defined and narrow in scope, whereas humans excel at defining problems that need to be solved and at solving complex problems. They bring a wide range of knowledge and skill to bear and can work through problems in various ways. They can collaborate with one another, and when situations change significantly, humans can adjust.

CIOs should use the enterprises five-year vision to develop a plan for achieving the right balance of AI and human skills. Too much AI-driven automation could leave the enterprise less flexible and less able to adjust to a changing competitive landscape. This approach will also help reassure employees about where and how AI will be used in the organization.

AI Will Challenge the CIO to Restructure IT Operations

AI will eventually replace many routine functions of the IT organization, particularly on the operations side, such as in system administration, help desk, project management and application support.

Some roles will disappear, but AI will improve some skills shortages, and the IT organization as a whole will increasingly focus on more creative work that differentiates the enterprise.

The CIO should commission the enterprise architecture team to identify which IT roles will become utilities and create a timeline for when these changes become possible, said Mr. Prentice. Work with HR to ensure that the enterprise has a plan to mitigate any disruptions that AI will cause, such as offering training and upskilling to help operational staff to move into more-creative positions.

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Fitch: Global Growth Recovery on Track
May 10,2017

The pick-up in global growth remains on track, with disappointing first-quarter US GDP data offset by better-than-expected numbers in China, and sustained growth in the eurozone and Japan, says Fitch Ratings in its Global Economic Update report.

Weaker 1Q US growth was explained by consumption and looks to have been affected by temporary factors. Falling unemployment, wealth gains, improved consumer confidence and the prospect of income tax cuts should support a recovery in consumption from 2Q17. In China, the impact of earlier policy stimulus on activity has proved more powerful than anticipated and the slowdown in the housing market has taken longer to materialise than expected, said Brian Coulton, Fitchs Chief Economist.

The resilience and breadth of the eurozone recovery continues, with the region posting its eighth consecutive quarter of steady growth at an annual pace of 1.5%-2%.

Rising bank credit to the private sector and strengthening housing markets suggest accommodative monetary policies are gaining traction in the eurozone, while a mild easing of fiscal policy since 2015 and strong job growth have also helped, added Coulton.

Fitch expects world growth to rise to 2.9% in 2017 from 2.5% in 2016 and has slightly revised up its 2018 forecast to 3.1% from 3.0% in March. The US growth forecast for 2017 has been revised down slightly but this has been offset by a better outlook for China and Japan.

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Moodys: Outlook for global shipping industry is stable; EBITDA to stay steady
May 10,2017

Moodys Japan K.K. says that the outlook for the global shipping industry is stable, given that -- after excluding M&As and spinoffs -- the aggregate EBITDA of rated shipping companies will remain at similar levels in 2017 as last year.

Unlike 2016, when the industry saw double-digit EBITDA declines, the operating environment has bottomed and earnings will remain stable, although at a low level during 2017. However, a material level of industrywide earnings growth will be beyond our 12-month horizon.

Moodys conclusions are contained in its recently released report on the global shipping sector, Outlook Update: Shipping - Global, Stable Outlook Reflects Easing of Dry Bulk, Containership Excess Capacity; Flat EBITDA.

Moodys further notes that the continued scrapping of Panamax-class vessels driven by the expansion of the Panama Canal and of older ships driven by tightening environmental regulations are likely to continue, partly offsetting global capacity expansion, a credit positive.

Further driving the stable outlook for the global shipping sector are signs of a recovery in the dry bulk and containership segments.

Market conditions are still weak, but are unlikely to worsen from the levels seen for both segments in 2016, and we expect that supply growth will exceed demand growth by less than 2%, or within our parameter for a stable view. Freight rates in these two segments will also gradually increase.

As indicated, Moodys view on the dry bulk segment is stable. Freight rates have improved on the back of a decrease in order books combined with continuous demand from China.

Our view on the containership segment is also stable, as supply growth will continue to outpace demand growth in 2017, causing freight rates to remain low, but higher than last years levels.

Meanwhile, our view on the tanker segment is negative, reflecting high supply and low freight rates. The segment faces very high levels of scheduled deliveries for 2017 and 2018, a credit-negative development because it will keep freight rates low over the coming 12 months.

For the shipping industry generally, we would consider changing the outlook back to negative if we see signs that shipping supply growth will exceed demand growth by more than 2% or that aggregate EBITDA will decline by more than 5% year over year. Downside risks remain high.

Conversely, we would consider a positive outlook if the oversupply of vessels declines materially and aggregate year-over-year EBITDA growth appears likely to exceed 10%.

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India Ratings Assigns IL&FS Transportation Investment Trust a Long Term Senior Debt Rating of Provisional IND AA+; Outlook Stable
May 10,2017

India Ratings and Research (Ind-Ra) has assigned IL&FS Transportation Investment Trusts (IL&FS Transportation InvIT) long-term senior debt rating of Provisional IND AA+. The Outlook is Stable. The rating reflects the combined credit quality of the underlying assets but does not reflect the ratings of the debt of individual special purpose vehicles (SPVs). Also, this is not a rating of the units of IL&FS Transportation InvIT.

Ind-Ra expects significant deleveraging (43% of INR25.78 billion debt on 31 December 2016) of operational road projects, resulting in improved coverage metrics and favourable gearing. The rating also reflects the sponsors strong track record in the highway sector. Post issuance, both Hazaribagh Ranchi Expressway Ltd (HREL) and Sikar Bikaner Highway Ltd (SBHL) shall become zero-external debt companies, while Jharkhand Road Project Implementation Co Ltd (JRPICL) and North Karnataka Expressway Ltd (NKEL) will have an external debt of INR12.50 billion and INR1.99 billion, respectively.

The overall operational track record of the projects, stable cash flows (more than 90% of revenue in the form of annuities) and highly fungible cash flows of the InvIT structure bolsters the overall credit profile. The InvITs cash flow shows considerable resilience to stress cases reflecting an adequate cushion for timely debt servicing in potential downside scenarios. The debt infused by the InvIT in the SPVs shall be subordinated to the external debt, and the InvIT shall not have a right to call an event of default under any project documents and/or any financial documents until the external debt is fully paid-off.

The rating is provisional since the proposed borrowing in the underlying assets are planned to be raised through bond issuances and the documents relating to the same are being finalised. The final rating is contingent upon the receipt of final documents conforming to the information already received. The documents include all financing and transaction documents including the legal opinion on the validity of transaction and structure, and an opinion related to taxation.


The sponsor, IL&FS Transportation Networks Limiteds (ITNL, IND A/Negative) has floated an InvIT and shall hive-off four operational SPVs namely, JRPICL, HREL, SBHL and NKEL under the said trust.

Subscription to InvITs units will be raised through private placement. Proceeds from subscription will be used to prepay a portion of existing bank loans and promoter subordinated debt. Post the issuance, ITNL shall hold 26% of units in InvIT for an initial period of three years.


IL&FS Transportation InvIT was established under Indian Trusts Act 1882 by signing Indenture of Trust dated 13 October 2016 with the trustee (Vistra ITCL (India) Ltd). The trustee would monitor InvITs operations in relation to its investment objectives and compliance with applicable regulations. InvIT received the certificate of registration as an Infrastructure Investment Trust on 7 December 2016 under the Securities and Exchange Board of India (Infrastructure Investment Trust) Regulations 2014 (InvIT regulations). As required by InvIT regulations, the InvIT appointed IIML Asset Advisors Limited (IAAL) as an investment manager and ITNL as a project manager. The InvIT would receive principal and interest payments on debt lent to the portfolio assets apart from the dividends from the SPVs.

The InvIT shall provide guarantees for shortfall in termination payments for meeting any contingent liabilities currently outstanding in the books of JRPICL. The project manager shall provide undertaking for any cost overruns for operation and maintenance (O&M) including major maintenance. Although the SPVs shall continue to have separate escrow accounts, the structure of IL&FS Transportation InvIT would ensure that any debt service shortfall in JRPICL would be bridged by the surplus cash flow in any other entity. Distribution to unit holders from InvIT shall happen on or after July each year only after fulfilling the external debt obligations of JRPICL. SBHL shall make payments to the InvIT every quarter, while HREL and JRPICL will make payments semi-annually and annually, respectively. There will be no external debt other than existing external debt in NKEL and the proposed borrowings at JRIPCL.


Strong Coverage Metrics: The significant deleveraging, which is visible in the projected coverage metrics with the base case, projects a healthy debt service metrics. The external debt holders of JRPICL shall have a charge on the distribution accounts of HREL, SBHL and NKEL. Ind-Ra assumes that JRPICL shall maintain cash reserve equivalent to one quarters peak debt service and NKEL shall maintain debt service reserve of INR400 million; each of these shall be available through the tenor of their respective proposed non-convertible debentures.

Limited Revenue Risk: The rating gains strength from the guaranteed semi-annual annuity payment from the government of Jharkhand (GoJ), for all the five projects of JRPICL, a first of its kind arrangement seen for state annuity road projects. Total annuity for the five stretches is INR3,581 million. The GoJ has assured annuity payment (semi-annual) either through its own budgetary provisions or any other appropriate funding mechanism. A strong annuity payment mechanism commencing from submission of invoice at least one month before the due date to the Independent Consultant up to the receipt of the annuity payment from the GoJ, including the involvement of the main sponsor although barely seen in the state concession projects, lends structural strength to the project. As on 31 March 2017, JRPICL received 34 of the expected 150 annuities for all the five projects. The average delay in receiving annuities is around five days.

The rating also reflects NKEL and HRELs low revenue-risk profile, where annuities are secured through an escrow account of fixed, semi-annual annuity streams under a concession agreement from a highly rated counterparty, the National Highways Authority of India (NHAI, IND AAA/Stable). As on 31 March 2017, NKEL and HREL received 24 and eight semi-annual annuities, respectively. SBHLs revenue is partially (40%) linked to the Wholesale Price Index other than a fixed annual escalation of 3% which mitigates price risk.

Completion Risk Mitigated: There is minimal implementation risk since all the projects are operational and have an established track record of annuity receipts. JRPICL shall upfront create a construction reserve of about INR100 million. The amount available in the reserve (post expenditure for completing the project) can be distributed to the sponsors only on receiving one full annuity payment for Chaibasa Kandra-Chowka project or receipt of the GoJ annuity letter, whichever is later.

Established Sponsor Group Track Record: The sponsors have a strong experience in the construction and operation of toll roads and annuity road projects with 30 projects at various stages of implementation. Maintaining the project stretches and collecting annuity are the responsibilities of Jharkhand Accelerated Road Development Company Limited. Ind-Ras analysis assumes the execution of a fixed price O&M agreement and incorporation of base case estimates, prior to the issuance. Contractual clauses include a stipulation in the term sheet requiring any overrun therein will be met by the O&M contractor. The contractor shall provide undertaking if the GoJ reduces the annuity in accordance with the concession agreement due to a shortfall in the performance of the former.

Future Acquisitions Shall Hold Key: The investment manager intends to develop and expand IL&FS Transportation InvITs portfolio of projects by capitalising on opportunities proposed to be provided by the sponsor to selectively undertake strategic acquisitions of both completed road assets and assets under advanced stages of

3 states together account for half of total investments attracted by real estate & construction sector: Study
May 10,2017

Maharashtra, Uttar Pradesh (UP) and Gujarat together account for over half of the total investments attracted by real estate and construction sector in India as of December 2016, noted a recent study by apex industry body ASSOCHAM.

n++There are about 3,489 projects worth Rs 14.5 lakh crore in the construction and real estate sector that are currently live across India,n++ according to the study titled Construction and real estate investment: State-level analysis, conducted by ASSOCHAM.

While Maharashtra alone accounts for lions share of about 25 per cent in total investments attracted by real estate and construction industry in India as of December 2016 followed by UP (13 per cent), Gujarat (13 per cent), Karnataka (10 per cent) and Haryana (nine per cent).

n++The centre and state governments must introduce a single-window clearance system at the earliest to avoid time and cost overruns that are impacting the growth and development of real estate sector in India,n++ said Mr D.S. Rawat, national secretary general of ASSOCHAM while releasing the findings of the chambers study.

n++Government should also grant industry status to the sector to counter the apathy of banks in financing realty projects,n++ said Mr Rawat.

n++As for the sector, the companies in the real estate space must keep looking for long-term financial resources to become independent,n++ he added.

The study prepared by ASSOCHAM Economic Research Bureau (AERB) highlighted that almost 90 per cent of construction and real estate investments are concentrated in top 10 states.

So far as the investment growth trend in this sector is concerned, the sector touched highest rate of 13.5 per cent in 2010 but recorded sharp downfall till 2013 whereby it recorded negative growth of about eight per cent but it picked up in 2014 to reach about three per cent and again fell to (-) 2 per cent in 2015.P>However, the real estate and construction investments recorded a positive growth rate of 2.5 per cent in 2016 as such the sector clocked compounded annual growth rate (CAGR) of (-) 0.7 per cent between 2011-16.

Among states, Odisha has recorded highest CAGR of about 37 per cent in investments attracted by realty sector during 2011-16 followed by UP (nine per cent), Maharashtra (three per cent), Kerala (1.6 per cent) and Andhra Pradesh (1.4 per cent) while rest all top states clocked negative growth in this regard.

It is worrisome to note that 70 per cent of construction and real estate investment projects remained non-starter in India since 2013.

Secondly, significant growth has also been recorded in projects that remained under different stages of implementation i.e. from 63 per cent in 2009 to about 77 per cent in 2015 which moderated to 72 per cent in 2016.

Among states, over 95 per cent of realty investment projects are under implementation in West Bengal followed by UP (90 per cent) and Punjab (88 per cent).

High under-implementation rate leads to time and cost overruns. As such of over 2,300 construction and real estate projects that are under-implementation, 886 projects are facing an average delay of 39 months and about 93 per cent of these projects are in the housing sector while rest are commercial complex.

More than 95 per cent of delayed 886 projects i.e. 845 projects are accruing to private sector ownership while public sector ownership has only 41 such projects.

Real estate projects in Punjab are facing maximum delays to the tune of 48 months followed by Telangana (45 months), West Bengal, Odisha and Haryana (44 months).

On a positive note, while the new investment activities in real estate and construction sector have recorded negative growth between 2011 and 2015, it recorded a significant spike in 2016 (32 per cent).

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The severity of the cash crunch, in conjunction with a slow pace of remonetization, led to a slowdown in economic activity in India
May 09,2017

On November 8, 2016, the Government of India withdrew the legal tender status of all existing 500 and 1,000 rupee banknotes, effective the next day, in a bid to nullify n++black moneyn++ hoarded in cash, address tax evasion, tackle counterfeiting, and curb financing of terrorism. The initiative affected notes with a total value of about 15 trillion rupees, which accounted for about 86 percent of all cash in circulation. At the time of the withdrawal, the introduction of a new series of 500 and 2,000 rupee banknotes was announced. However, the supply of new banknotes in the months following the initiative was insufficient, even as the authorities took multiple steps to ease the currency transition. While there was no limit on the amount of bank deposits for the phased-out bills, the scarcity of new banknotes prompted the government to suspend cash exchanges and impose tight caps on cash withdrawals by individuals as well as by corporations. As disruptions to payments arose, several temporary exemptions were granted to ease the cash crunch. These exemptions aimed at easing transactions in some public offices and for the farming sector, as well as making payments for public utility services and purchasing key primary products.

The key factor behind the short-term economic disruptions was the primarily cash-based nature of the Indian economy and its limited electronic payments infrastructure. At end-2015, currency in circulation in India stood at about 12 percent of GDP, one of the highest levels among countries covered by the Bank for International Settlements Committee on Payments and Market Infrastructure. Cash accounted for about threequarters of the narrow money base, as a large number of households (particularly in rural areas of India) rely on cash for everyday transactions. Numbers of bank branches and ATMs per capita are relatively low in India; few payment cards with a cash function exist; and the average number of transactions per Indian made with payments instruments in 2015 totaled 11 transactions.

The severity of the cash crunch, in conjunction with a slow pace of remonetization, led to a slowdown in economic activity. Indias Purchasing Managers Index for services, which also covers retail and wholesale trade, collapsed from 55 in October 2016 to 43 in November, 2016. The growth of credit to the nonfood private sector decelerated from 9 percent at end-October 2016 to a 10-year low of just 4 percent by end-December, 2016. The consumer goods component of the index of industrial production declined by about 7 percent in December 2016, with production of consumer durables falling by 10 percent. Domestic sales of motor vehicles declined by 20 percent in December 2016 compared to December 2015, with the largest drop taking place in Indias mass-consumer-oriented segment of three-wheel and two-wheel passenger vehicles. Although the slowdown in industrial activity has been relatively muted, with overall industrial production falling by less than n++ of 1 percent from the previous year, investment activity appears to have been severely affected. As per the data compiled by the Centre for Monitoring of Indian Economy, the number of new investment projects announced during the October-December 2016 quarter was the lowest in over a decade, and their combined value was only about one-half of the average recorded during the previous two years. While the remonetization proceeded slowly over the first few months, about 75 percent of the pre-demonetization level of currency in circulation was restored by late March.

IMF staff analysis suggests that, compared to the October 2016 IMF World Economic Outlook forecasts, cash shortages are likely to slow FY2016/17 growth by about 4/5 of 1 percentage point and FY2017/18 growth by about n++ of 1 percentage point. A decline in currency supply can be calibrated as a temporary tightening of monetary conditions, using previous money demand studies for India.1 The currency shortage associated with the currency exchange, assumed by the staff to gradually unwind through early 2017, corresponds to a substantial tightening of monetary conditions in the initial weeks of the initiative, which will ease as currency is replaced. Consequently, based on the IMFs India Quarterly Projection Model, GDP growth is expected to slow in the second half of FY2016/17, before gradually rebounding in the course of FY2017/18. An analysis of sectoral accounts that takes reliance on cash into account leads to similar estimates of growth for fiscal years 2016/17 and 2017/18. It is likely, however, that national accounts statistics, at least in the near term, may understate the economic impact of the cash crunch. Specifically, the impact on the informal economy and cash-based sectors, which are relatively large and have been affected the most by the cash crunch, is likely to be understated because these sectors are either not covered in the official statistics or are proxied by the formal sector activity indicators. Nonetheless, the economic repercussions from the currency withdrawal remain a key domestic risk in India, in part as the near-term adverse economic impact of accompanying cash shortages remains difficult to gauge.

Notwithstanding the near-term economic disruptions, the currency withdrawal and exchange initiative may help secure some long-term gains, particularly if complemented by reforms to strengthen Indias formal economy and the financial system. The scope for medium-term gains could span several dimensions:

n++ Fiscal gains- Bank deposits of large amounts (above US$4,000) were expected to attract high scrutiny from the Indian tax authorities and the information obtained as a result of income verification could lead to a durable impact on the tax revenue base. With only about 1 percent of the Indian population paying personal income taxes, the scope for broadening the tax base is clearly large. In principle, unreturned cash could also produce a one off revenue gain for the Reserve Bank of India that can enable an increased dividend transfer to the Government of India. Any such windfall revenue would need to be clearly established, should be only realized once, and should be absorbed prudently and preferably in a nonrecurring manner, for example through greater capital injections to public sector banks.

n++ Banking sector liquidity-The increase in banking system liquidity as a result of the currency exchange initiative has been massive, and it can reduce banks funding costs and thereby lead to a decline in bank lending rates. With a surge in bank deposits and waning demand for credit, the weighted average lending rate of banks on new loans declined by 56 basis points during November 2016 to January 2017. That said, even though the financial system is expected to weather the currency-exchange-induced temporary growth slowdown, the authorities should remain vigilant to risksn++in view of the potential further buildup of nonperforming loans, including among private banks and elevated corporate sector vulnerabilitiesn++and ensure prudent support to the affected economic sectors.

n++ Digitalization and de-cashing-The demonetization initiative can be seen as a follow-up to Indian authorities strong policy push toward greater financial inclusion. Over the past few years, 250 million previously unbanked Indians have been provided with a bank account, and more efficient customer identification is now in place, including with the rollout of a unique identification number (Aadhaar) and the adoption of know-your-customer technologies. More recently, an important technological milestone was the rollout of the Unified Payment Interface, which is an instant virtual fund that transfers service between two bank accounts using a mobile platform that was accompanied by the roll out of e-payment and point of-sale technologies. While the push for greater digitalization of the economy and the financial system is logical, large gaps

Total Foodgrains Production Estimates at record 273.38 mt
May 09,2017

The 3rd Advance Estimates of production of major crops for 2016-17 have been released today by the Department of Agriculture, Cooperation and Farmers Welfare. The assessment of production of different crops is based on the feedback received from States and validated with information available from other sources. As a result of very good rainfall during monsoon 2016 and various policy initiatives taken by the Government, the country has witnessed record foodgrain production in the current year. The estimated production of various crops as per the 3rd Advance Estimates for 2016-17 vis-n++-vis the comparative estimates for the years 2003-04 onwards is enclosed.

As per 3rd Advance Estimates, the estimated production of major crops during 2016-17 is as under:

n++ Foodgrains - 273.38 million tonnes (record)

n++ Rice - 109.15 million tonnes (record)

n++ Wheat - 97.44 million tonnes (record)

n++ Coarse Cereals - 44.39 million tonnes (record)

n++ Maize - 26.14 million tonnes (record)

n++ Pulses - 22.40 million tonnes (record)

n++ Gram - 9.08 million tonnes

n++ Tur - 4.60 million tonnes (record)

n++ Urad - 2.93 million tonnes (record)

n++ Oilseeds - 32.52 million tonnes

n++ Soyabean - 14.01 million tonnes

n++ Groundnut - 7.65 million tonnes

n++ Castorseed - 1.55 million tonnes

n++ Cotton - 32.58 million bales (of 170 kg each)

n++ Sugarcane - 306.03 million tonnes

As a result of very good rainfall during monsoon 2016 and various policy initiatives taken by the Government, the country has witnessed record foodgrain production in the current year. As per Third Advance Estimates for 2016-17, total Foodgrain production in the country is estimated at 273.38 million tonnes which is higher by 8.34 million tonnes (3.15%) than the previous record production of Foodgrain of 265.04 million tonnes achieved during 2013-14. The current years production is also higher by 16.37 million tonnes (6.37%) than the previous five years (2011-12 to 2015-16) average production of Foodgrains. The current years production is significantly higher by 21.81 million tonnes (8.67%) than the last years foodgrain production.

Total production of Rice is estimated at record 109.15 million tonnes which is also a new record. This years Rice production is higher by 2.50 million tonnes (2.34%) than previous record production of 106.65 million tonnes achieved during 2013-14. It is also higher by 3.73 million tonnes (3.54%) than the five years average Rice production of 105.42 million tonnes. Production of rice has increased significantly by 4.74 million tonnes (4.54%) than the production of 104.41 million tonnes during 2015-16.

Production of Wheat, estimated at 97.44 million tonnes is also a record. This years wheat production is higher by 1.66% than the previous record production of 95.85 million tonnes achieved during 2013-14. Production of Wheat during 2016-17 is also higher by 4.83 million tonnes (5.21%) than the average wheat production. The current years production is higher by 5.15 million tonnes (5.58%) as compared to Wheat production of 92.29 million tonnes achieved during 2015-16.

Production of Coarse Cereals estimated at a new record level of 44.39 million tonnes is higher than the average production by 3.04 million tonnes (7.36%). It is higher than the previous record production of 43.40 million tonnes achieved during 2010-11 by 0.99 million tonnes (2.28%). Current years production is also higher by 5.87 million tonnes (15.23%) as compared to their production of 38.52 million tonnes achieved during 2015-16.

As a result of significant increase in the area coverage and productivity of all major Pulses, total production of pulses during 2016-17 is estimated at 22.40 million tonnes which is higher by 3.15 million tonnes (16.37%) than the previous record production of 19.25 million tonnes achieved during 2013-14. Production of Pulses during 2016-17 is also higher by 4.77 million tonnes (27.03%) than their Five years average production. Current years production is higher by 6.05 million tonnes (37.03%) than the previous years production of 16.35 million tonnes.

With an increase of 7.27 million tonnes (28.80%) over the previous year, total Oilseeds production in the country is estimated at 32.52 million tonnes. The production of Oilseeds during 2016-17 is also higher by 3.27 million tonnes (11.17%) than the five years average Oilseeds production.

Production of Sugarcane is estimated at 306.03 million tonnes which is lower by 42.42 million tonnes (-12.17%) than the last years production of 348.45 million tonnes.

Despite lower area coverage during 2016-17, higher productivity of Cotton has resulted into higher production of 32.58 million bales (of 170 kg each), i.e. an increase of 8.57%, as compared to 30.01 million bales during 2015-16.

Production of Jute & Mesta estimated at 10.27 million bales (of 180 kg each) is marginally lower (-2.39%) than their production of 10.52 million bales during the last year.

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Asias Dynamic Economies Continue to Lead Global Growth-IMF
May 09,2017

The Asia and Pacific region continues to deliver strong growth, in the face of widespread concerns about growing protectionism, a rapidly aging society, and slow productivity growth, according to the IMFs latest regional assessment, as per IMF Regional Economic Outlook for Asia and the Pacific.

The Regional Economic Outlook for Asia and the Pacific estimates growth for the region to increase this year to 5.5 percent from 5.3 percent in 2016. Growth will remain strong at 5.4 percent in 2018, as the region continues to be the leader of global growth.

The report also cites the more favorable global environment with growth accelerating in many major advanced and emerging market economiesn++notably the United States and commodity exportersn++as supporting Asias positive outlook. Risk appetite remains strong in global financial markets despite some bouts of capital flow volatility in late 2016.

n++The signs of growth in the region are encouraging so far. The policy challenge now is to strengthen and sustain this momentum,n++ said Changyong Rhee, Director of the IMFs Asia and Pacific Department.

Strong growth ahead

In China, the regions biggest and the worlds second largest economy, policy stimulus is expected to keep supporting demand. Although still robust with 2017 first quarter growth slightly stronger than expected, growth is projected to decelerate to 6.6 percent in 2017 and 6.2 in 2018.

This slowdown is predicated on a cooling housing market, partly reflecting recent tightening measures, weaker wage and consumption growth, and a stable fiscal deficit.

Japans growth forecast for 2017 has been raised to 1.2 percent with support from expansionary fiscal policy and the postponement of the consumption tax hike (from April 2017 to October 2019). The expansion would slow down to 0.6 percent in 2018 as the boost from the fiscal stimulus wears off.

The outlook for other Asian economies is also positive, but with some exceptions. Indias growth is expected to rebound to 7.2 percent in FY 2017-18 as the cash shortages accompanying the currency exchange initiative ease.

In most of the Southeast Asian economies, growth is expected to accelerate somewhat, supported by robust domestic demandn++an important driver of growth in these countries. Meanwhile, growth in Korea is projected to remain subdued at 2.7 percent this year despite the recent pick up in exports, mainly owing to weak consumption.

Uncertain outlook: downside risks

The regions outlook, however, is clouded with uncertainty. On the plus side, larger-than-expected fiscal stimulus in the United States or stronger business and consumer confidence in advanced economies could provide a further boost to Asias exports and growth. Reforms, such as productive public investment in infrastructure in ASEAN and South Asian economies, could help prolong the positive momentum.

But if the U.S. fiscal stimulus leads to higher-than-expected inflation pressures, the Federal Reserve could accelerate the pace of interest rate increases in response, leading to a stronger U.S. dollar.

A sudden tightening of global financial conditions could adversely impact Asian economies with high external financing needs and weak private sector balance sheets, including by triggering capital outflows and unwinding of productive investment projects.

Asian economies are especially vulnerable to protectionism because of their trade openness and integration to global value chains. A global shift toward inward-looking policies could suppress Asias exports and reduce foreign direct investment to Asia. Furthermore, a bumpier-than-expected transition in China or geopolitical tensions in the region could also weaken near-term growth.

Challenges to growth

Asia needs to tackle two longer-term challenges: population aging and slow productivity catch-up. According to the report, Asia is aging remarkably fast compared to the experience in Europe and the United States. As a population grows older, there will be fewer workers, and over time, a shrinking workforce and aging population can mean a rise in healthcare costs and pension expenditure.

This puts pressure on government budgets, and can translate into lower growth. The report estimates that over the next three decades, demographic trends could subtract 0.5 to 1 percentage point from average annual GDP growth in relatively old Asian economies such as China and Japan.

Slow productivity growth is another worry. The region has not been able to catch up to the high productivity levels of countries at the global technology frontier. Declines in trade and foreign direct investment could also be harmful to Asian economies given their vital roles in transmitting technology and promoting domestic competition.

Policies to reinforce growth

Given these challenges, macroeconomic policies should focus on supporting demand and structural reforms.

The report notes that monetary policy should stay accommodative in economies with economic slack and below-target inflation rates. Should inflation pressures gather pace, however, central banks should stand ready to raise policy rates.

Well-targeted structural reforms would help strengthen the regions resilience to external shocks and sustain strong and inclusive long-term growth. Considering Asias rapid aging, policies aimed at protecting the vulnerable elderly population and prolonging strong growth take on a particular urgency. These include measures that promote labor force participation of women and the elderly, as well as strengthening pension systems.

These policies should be supplemented by productivity-enhancing reforms. Priorities differ across Asias dynamic economies. Advanced Asian economies should focus on making research and development spending more effective and raising productivity in the services sector.

In emerging and developing economies, attracting foreign direct investment and expanding the economys capacity to absorb new technology and boost domestic investment is more urgent. These steps will help the region to build on and continue with the growth momentum.

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Moodys: Productivity growth slowdown remains a sizeable risk to global growth
May 09,2017

The persistent decline in labor productivity growth, one of the key drivers of overall economic performance, corporate profitability and the government tax base, remains among the most significant risks to the outlook for global growth, says Moodys Investors Service in a new report.

Moodys expects global growth to accelerate to 3.1% this year and 3.5% in 2018 from 2.7% in 2016, as most advanced economies register stable growth and some emerging market economies regain momentum after several years of deceleration.

Despite the cyclical uptick, we expect global growth to remain significantly below pre-crisis levels in the near term, driven by slower growth in both employment and labor productivity, says Elena Duggar, an Associate Managing Director at Moodys.

While we expect productivity growth to rebound somewhat this year and next, there will be a notable impact on growth if it fails to improve, adds Duggar.

For example, should productivity growth remain at its 2016 pace of 1.2% or even at its average pace of 1.7% over 2011-2015, global growth in 2018 could be as low as 2.5% or 3% respectively, compared to Moodys current expectation of 3.5%.

Productivity growth has been slowing for a number of years, and in particular following the financial crisis. This trend is being driven by a combination of factors, including weak investment in the aftermath of the crisis due to the constrained availability of credit. A high degree of business pessimism and elevated economic and policy uncertainty has also contributed to the decline, partly by tilting investment away from higher-risk higher-return projects, which are the drivers of rising productivity growth.

Long-term trends such as population aging and the slowing growth in human capital and education are also behind the decline in productivity growth, as well as slower technology diffusion, lower dynamism of the economy, reduced technological spillovers due to the falling pace of globalization, and exhausted gains from sectoral reallocation in many countries globally.

The report examines the extent of the productivity growth slowdown across 123 countries globally, its drivers, its meaning for the economy, and why Moodys believes it remains a sizeable downside risk to global economic growth and, consequently, credit conditions.

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Delhi Metro to be extended from Najafgarh to Dhansa Bus Stand
May 09,2017

Dhansa Bus Stand in the National Capital will be connected by Delhi Metro in the next three years. Government of India has approved the 1.18 km Under Ground metro extension from Najafgarh to Dhansa Bus Stand at a cost of Rs.565 cr. This extension is scheduled for completion by Delhi Metro Rail Corporation by 2020.

Of the total cost of the project,central government will bear Rs.107 cr in the form of 50% Equity (Rs.75.50 cr) and Subordinate Debt. Japanese International Cooperation Agency (JICA) will provide Rs.323 cr while the rest will be borne by the Government of National Capital Territory of Delhi including Equity (Rs.75.50 cr) and Subordinate Debt.

Najafgarh -Dhansa Bus Stand Metro Extension is estimated to serve the travel needs of an additional 10,000 passengers per day catering to the needs of people of Nangloi, Dhansa, Bahadurgarh and the adjoining areas.

As per 2016 estimates, 3.61 lakh vehicle trips are generated at Najafgarh. Since the area between Najafgarh and Dhansa is densely populated with substantial built up areas, extension to Dhansa Bus Stand has been made Under Ground.

The 4.50 km Dwarka - Najafgarh Metro Section, approved in September, 2012 is likely to be completed by December this year.

Work on Najafgarh-Dhansa Bus Stand extension is likely to start in July this year since the line alignment survey has already been completed and tenders called for.

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