By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has affirmed Sikar Bikaner Highway Limited’s (SBHL) INR 4,000 million long-term senior project bank loan at ‘IND BBB’. The Outlook is Stable.

KEY RATING DRIVERS

Limited Completion Risk: The affirmation reflects receipt of provisional completion certificate for 99% of the project stretch on 16 August 2016, hand-over of 99.9% of the project stretch to SBHL and infusion of 100% equity in line with Ind-Ra expectations. The presence of a fixed price engineering, procurement and construction (EPC) contract eliminates any residual construction risk.

Sponsor Undertaking: The rating is reinforced by the sponsor’s undertaking to fund cost overruns including interest during construction, major maintenance expenses and shortfall/delay in receipt of the grant and to provide necessary support to meet financial covenants. SBHL’s credit profile is enhanced by the promoter’s undertaking which we believe, they are well-equipped to deliver. Ind-Ra expects IL&FS Transportation Networks Limited (ITNL, ‘IND A’; Outlook Negative) to provide timely support to the project including any cash flow mismatch in debt service during the time of distress.

ITNL which owns 100% of SBHL is one of the most experienced sponsors with a reasonably large portfolio of projects under operation, construction and implementation. The sponsor has a good mix of toll road projects and annuities in construction and operating stages.

Moderate Revenue Risk: The project, being a toll road project, has inherent traffic-related revenue risk especially in light of limited availability of historical traffic data. This stretch is dominated by commercial traffic, which is also vulnerable to volatility mirroring economic cycles. Tolling has been commenced on the project road after receipt of provisional certificates in October 2015 and August 2016. The revised traffic estimates by Feedback Infra Pvt Ltd are lower than the original estimates due to recent economic slowdown and traffic diversion on the alternate road network.

Comfortable Debt Structure: Subsequent to delays in the scheduled commercial operations, the principal repayment is shifted to June 2017 from June 2016. The principal will amortise over 42 unequal quarterly instalments from June 2017. The project is exposed to a variable interest rate, currently at 10.73% (weighted average). Interest rate is linked to the base rate and the spread is to be reset on Commercial Operation Date every two years thereafter. The project has a tail period of over nine years. A debt service reserve account equivalent to one quarter debt service obligations provides cushion in case of a cash flow mismatch.

Thin Coverage Ratios: Ind-Ra base case indicates a thin debt service coverage ratio (DSCR) due to lower traffic, necessitating sponsor support for timely debt servicing. Ind-Ra base case DSCR indicates a low DSCR in FY21 due to first major maintenance cycle scheduled between FY21 and FY24.


RATING SENSITIVITIES

Negative: Any significant traffic underperformance resulting in inadequate cash flows to service debt, absent sponsor support and any significant weakening of the sponsor’s credit profile could result in a negative rating action.


COMPANY PROFILE

SBHL is a special purpose company incorporated to undertake the widening and operations of a combination of a two-lane and four-lane highway (National Highway–NH 11) in Rajasthan. The concession grantor is the public works department of the government of Rajasthan. The concession is for a period of 25 years, with a right to collect toll during the concession. The project cost of INR9,013.7 million is being met by sponsor equity of INR1,240.5 million, a sponsor sub-debt of INR1,300 million, government of Rajasthan grant of INR2,473.2 million (INR2,145 million received) and a senior bank loan of INR4,000 million. The security and terms of the subordinate debt agreement is junior to the senior debt. SBHL is 100% owned by ITNL.



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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Applicable Criteria

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

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121