By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has assigned DBL Hirekerur Ranibennur Tollways Limited’s (DHRTL) term loan the following rating:

Instrument Type

Date of Issuance

Rate of Interest

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan

-

-

September 2025

INR960

IND BBB/Stable

Assigned

KEY RATING DRIVERS

Low Revenue Risk Profile: DHRTL’s credit profile is primarily driven by fixed, pre-agreed semi-annual annuities to be received from a state counterparty, Karnataka Road Development Company Limited (an undertaking of the government of Karnataka (GoK)). Ind-Ra rates government-guaranteed bond issues of GoK-owned corporations as ‘IND AA-(SO)’. DHRTL shall receive 16 semi-annual annuity payments of INR196.2 million during the operational period.

Although annuity payments are subject to deductions for non-conformance to lane availability norms and underperformance, maintenance requirements are relatively straightforward. Sponsor-cum-proposed operator Dilip Buildcon Limited (DBL;
‘IND A’/Stable) has a portfolio of 21 annuity/annuity-plus toll road assets (including 13 operational), indicating its decent operating track record in the highway sector.

Construction Risk: According to the last available lender independent engineering report dated February 2017, about 6% of the construction of the Hirekerur-Ranibennur stretch is completed. The scheduled commercial operations date of the DHRTL road project is 28 September 2018. However, the presence of a fixed-price construction contract, sponsor commitment to fund cost overruns and strong experience of the sponsor mitigate the construction risk.

Moreover, the scope of work does not involve the construction of any complex structures. Hence, Ind-Ra expects the stretch to be completed on time. DHRTL depends on the GoK for grants, during the construction period, and annuity revenue; the former representing 36% of the estimated project cost.


Sponsor Undertakings: DBL has given explicit undertakings to meet any cost overruns and make good a shortfall in debt service payments. Also, DHRTL’s liquidity is supported by the provision to create a debt service reserve account (DSRA) within 30 days from the commercial operations date (COD). Given the demonstrated track record of timely injection of equity and undertakings, Ind-Ra expects DBL to timely support debt service and other financial commitments during financial distress, if any.

Debt Structure: Financial risks take the form of an annual variable interest rate, which is linked to the base rate of the sole banker. Any significant interest rate fluctuations and absent sponsor support would be credit negative. The DSRA, equivalent to six months’ debt service obligations, provides cushion against any cash flow mismatches. The sponsor shall create the DSRA within 30 days from the COD, either in the form of a bank guarantee or a deposit for the first six months of repayment obligations. The DSRA shall be released once the company creates the DSRA using cash flows from the project.

Subdued O&M Risk: DHRTL expects DBL, the main sponsor, which has significant experience in operating and maintaining road projects, to be an operations and maintenance (O&M) operator. DBL shall undertake O&M. Given DBL’s experience and track record and considering the O&M would not be complex, Ind-Ra does not expect any major O&M risk.


RATING SENSITIVITIES

Negative: Significant construction delays or absence of timely sponsor support could result in a rating downgrade.


COMPANY PROFILE

DHRTL has been granted a 10-year concession by Karnataka Road Development Corporation Limited (KRDCL) for the upgrade of the two-laning of the 55.69km Hirekerur-Ranibennur stretch in Karnataka on a design, build, fund, operate, maintain and transfer on hybrid annuity basis. KRDCL shall pay a lump sum amount of INR703.8 million and 16 semi-annual annuities of INR196.2 million each after COD.



COMPLEXITY LEVEL OF INSTRUMENTS

Project loans are instruments with moderate complexity levels where the relationship between the inherent risk factors and intrinsic return characteristics is less straightforward given the presence of certain contingency features. Special Purpose Vehicle structure is backed by a single asset.

For more information, visit https://www.indiaratings.co.in/complexity-indicators.

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.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

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For more information, visit www.indiaratings.co.in.

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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

    Dr. Sunil Kumar Sinha

    Principal Economist and Director Public Finance
    +91 11 43567255

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121