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Fitch Affirms IRB Surat Dahisar Tollway's Bank Loans

Fitch Ratings-Chennai/Singapore-13 July 2012: Fitch Ratings has affirmed India-based IRB Surat Dahisar Tollway Private Ltd's (IRBSD) INR13,007.59m senior project bank loan at 'Fitch BBB(ind)'. The Outlook is Negative.

IRBSD is an SPV, incorporated to implement a lane expansion project on a design, build, finance, operate and transfer basis under a 12-year concession from the National Highways Authority of India (NHAI; 'Fitch AAA(ind)'/ Stable). The road connects Surat in Gujarat with Dahisar in Maharashtra and is part of the National Highway NH-8. The SPV is owned by IRB Infrastructure Developers Limited (IRBIDL; 90%, 'Fitch A-(ind)'/Stable) and Deutsche Bank (10%, 'A+'/'F1+'/ Stable).

The affirmation reflects IRBSD's significant engineering, procurement and construction (EPC) cost savings, continued evidence of sponsor support, and the subsequent reduction in the senior debt level. The project's debt as on 31 March 2012 stood at INR13bn, down from the drawn down amount of INR17.44bn. This, along with INR5.11bn of sponsors' contribution and INR2.73bn of toll collections during construction, funded the project cost of INR25.28bn. This is about an 11% reduction in the project cost from the originally projected INR28.35bn (originally projected debt: INR19.56bn). Management expects no further debt drawdown and Fitch's base case projections are based on a project debt burden of INR13bn.

The reduction in debt from INR17.44bn to INR13bn was through amortisation, injection of INR1.6bn through unsecured loans from IRBIDL and group companies, and by agreeing with the EPC contractor, Modern Road Makers Private Limited (another IRBIDL subsidiary), to defer the payment of INR2.5bn until after a five-year defects liability period. Fitch assumes that this amount will be paid from operating cash flows or fresh equity when it comes due but not from new debt.

The Negative Outlook reflects residual completion and traffic ramp-up risks. In the absence of a recent independent engineer's report, Fitch has relied on auditor's certificates of project costs and management's reports on completion progress. According to IRBSD management, about 7km of right of way is yet to be handed over to the project company where EPC works are still pending and the construction of two flyovers is still incomplete. Management reports that one is nearing completion and the other is pending due to local issues. However, Fitch notes that these factors do not impact tolling. Management expects that the remaining INR2.5bn budget will adequately cover residual construction costs.

The rating also reflects the lower-than-expected traffic ramp-up experience. While the significant debt reduction has improved coverage ratios, Fitch's base case projected debt service coverage ratios remain extremely thin (close to 1.0x for the next few years). Unless the traffic ramp-up improves due to either the opening of the adjoining Thane-Godhbunder flyover, as management expects, or other factors, coverage is expected to remain thin.

The rating is supported by Fitch's expectation that IRBIDL will continue to support IRBSD at least in the short-medium term. This is based on the project's continued economic capacity to retire debt, the strength of the sponsor and the sponsor's track record in reducing debt in projects where there is revenue underperformance. This expectation of support is strengthened by a corporate guarantee provided by IRBIDL towards the payment of all dues under the financing agreements. The guarantee is structured to support recovery value in a post-payment default scenario.

WHAT COULD TRIGGER A RATING ACTION?

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- No progress on completion of testing by NHAI and award of the provisional completion certificate (already applied) without additional debt burden

- Failure to demonstrate revenue ramp-up in line at least with Fitch's rating case (12% yoy)

Positive: Future developments that may potentially lead to a positive rating action include:

- satisfactory resolution of completion with no further debt and award of a provisional completion certificate

- payment to the EPC contractor through project's surplus or through sponsor support

- continued traffic ramp-up in line Fitch's base case expectations (13%-14% yoy)

Contact:

Primary Analyst

Shyamali Rajivan

Associate Director

+91 44 4340 1708

Fitch Ratings India Pvt Ltd

4th Floor, D South, Tidel Park

No. 4, Rajiv Gandhi Salai, Taramani

Chennai 600113, India

Secondary Analyst

Chintan Lakhani

Analyst

+91 22 4000 1790

Committee Chairperson

Dan Robertson

Managing Director

+44 20 3530 1312

Media Relations: Bindu Menon, Mumbai, Tel: + 91 22 4000 1727, Email: bindu.menon@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'Fitch AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

Applicable criteria, 'Rating Criteria for Infrastructure and Project Finance', dated 16 August 2011, 'Rating Criteria for Toll Roads, Bridges & Tunnels', dated 5 August 2011, and 'Rating Criteria for Availability-Based Infrastructure Projects', dated 20 June 2011, are available www.fitchratings.com.

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

Rating Criteria for Toll Roads, Bridges, and Tunnels

Rating Criteria for Availability-Based Projects

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

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Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including over 3,500 banks and 1,400 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings’ financial institution coverage universe.

Additionally, the agency currently rates more than 2,000 corporate issuers, 100 sovereigns, 200 sub-sovereigns, 300 global infrastructure ratings, and 46,000 U.S. municipal transactions. Fitch Ratings maintains surveillance on over 6,500 U.S., 1,300 European and 400 Asian structured finance transactions.

Fitch India has six rating offices located at Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.

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