By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has assigned Trichy Tollway Private Ltd’s (TTPL) INR2,808m (INR2,746.6m outstanding on 30 September 2016) bank loans and INR1,750m (INR1697.5m outstanding on 30 September 2016) non-convertible debentures (NCDs) ‘IND AA-’ ratings. The Outlook is Stable. The agency has also withdrawn the ‘IND A+’/Stable rating on TTPL’s INR4,880m bank loans as the facility has been paid in full.

The ratings reflect the completion of major maintenance work for the project and refinancing at reduced interest rates resulting in better-than-expected coverage metrics.|

PROJECT PROFILE 

TTPL is a special purpose vehicle (SPV) established to construct, operate and transfer a 93.89km road stretch in Tamil Nadu, between Ulundurpet and Padalur on NH45, linking Trichy and Chennai. The concession is to convert the two-lane stretch into four lanes. The scheduled completion date was 26 June 2009; however, TTPL achieved completion on 5 September 2009 due to modifications in the scope of work. The project had refinanced its loans with enhanced security features; this was factored into the rating at the time of assignment in July 2014. TTPL booked toll income of INR1,169.50m in FY16 (FY15: INR1,155.67m).

KEY RATING DRIVERS

Consistent Toll Income Growth: TTPL’s toll income increased at a CAGR of 11.71% over FY11-FY16, on account of stable growth in revenue from trucks and passenger cars as well as inflation-linked movements in toll rates. Average monthly toll collections increased to INR97.46m in FY16 from INR56.02m in FY11. Revenue dependence on toll escalation has reduced slightly, given improved traffic growth rates However, continued improvements will be crucial for further rating actions. The toll rates were lowered in September 2015 (by around 2%) due to a contraction in the Wholesale Price Index.

Strong Growth in Car Traffic Mitigates Volume Risk:
Strong growth in car traffic in FY16 was offset by the closure of toll collection for 15.25 days in December 2015.  Increased economic activity on the stretch boosted car traffic. The road stretch acts as a key corridor between the southern districts of Tamil Nadu (Madurai, Trichy, Tirunelvelli and Tuticorin) and the capital city (Chennai). Upcoming special economic zones and pilgrimage spots on the connecting stretches highlight the increased traffic activity on the road.

Financially Strong Sponsors:
TTPL is held by Macquarie SBI Infrastructure Investments Pte Limited (72%) and SBI Macquarie Infrastructure Trust (28%), both investment funds promoted by the Macquarie Group (Fitch Ratings Ltd.’s Issuer Default Rating ‘A-’/Stable) as well as the State Bank of India (‘IND AAA’/Stable). Overall, the financial strength of the sponsors bolsters TTPL’s ratings.

Adequate Coverage Ratios:
Ind-Ra’s forecasts indicate adequate coverage ratios, with a minimum debt service coverage ratio (DSCR) of 1.38 during the tenor of the bank loans and NCDs. TTPL has refinanced its existing bank loans at lower interest rates and can withstand a large fall in traffic without defaulting on its debt commitments. The agency expects the coverage to improve in FY17 due to the strong recovery in truck traffic in FY15 as well as strong growth in car traffic in FY16. Additionally, its debt service reserve account (DSRA), comprising one quarter’s principal and interest obligations, supports the rating.

Completion of Major Maintenance:
TTPL has already completed major maintenance works on the road in FY15-FY16. The next major maintenance will be carried out in FY20-FY21 and Ind-Ra believes a major maintenance reserve would be created using future operating cash flow as outlined in the loan agreement.


RATING SENSITIVITIES

Positive: Substantial improvement in DSCR beyond Ind-Ra expectations on the back of sustained revenue performance at current levels will be positive for the ratings.

Negative:
Deterioration in DSCR beyond Ind-Ra expectations due to any additional material gearing and sustained traffic underperformance will be negative for the ratings. 



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings 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. 

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Analyst Names

  • Primary Analyst

    Ratnam Raju Nakka

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001742

    Committee Chairperson

    Venkataraman Rajaraman

    Senior Director and Head Infrastructure and Project Finance
    +91 44 43401702

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121