By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has assigned Nagpur Waste Water Management Private Limited’s (NWWMPL) bank facilities the following ratings:

Instrument Type

Date of Issuance

Rate of Interest

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Term loan

-

-

November 2031

INR1,650

IND BBB-/Stable

Assigned

Bank guarantee

-

-

-

INR50

IND BBB-/Stable

Assigned

KEY RATING DRIVERS

Residual Construction Risk: The rating reflects the residual construction risk, as NWWMPL aims to complete the project by February 2018. The scope of the project includes operation and maintenance of the existing 100MLD sewage treatment plant on minimum 66% capacity and augmentation of the capacity to 200MLD, at Bhandewadi, Nagpur City. NWWMPL has achieved physical progress of 59.79% till 28 February 2017 as against the revised planned programme of 65%. The delay was on account of the deferment in the procurement of pipes and the construction of a pumping station, due to monsoons. The lenders’ independent engineer opined that the project would be completed before the scheduled commercial operation date (SCOD) of 10 February 2018. 

Residual Equity Risk: 
NWWMPL’s promoters have infused around 76% of their equity commitment and its sponsor has enough liquidity to fund the balance equity of INR166.1 million in FY18. According to the management, the sponsor has allocated separate funds for the equity injection in FY18 and there are no other equity requirements for the fellow subsidiaries of the sponsor company. 

Moderate Revenue Risk:
The rating is supported by the fixed capex grant of INR72 million/year, payable quarterly, and an operational grant of INR497.8 million for FY18, payable monthly, to NWWMPL by Nagpur Municipal Corporation (NMC). The concession agreement provides assurance of grant payment by the concessionaire, by way of the first right on the escrow arrangement entered into between NMC and Maharashtra Power Generation Corporation. This is likely to result in escrowing of raw sewage royalty charges of INR150 million/year over the next 30 years. Water supply is the responsibility of NMC and non-availability of water at the project site is unlikely to affect the project revenues according to the Concession Agreement Article 10. NMC reported revenue of INR13,258 million in FY16 against INR10,649 million in FY15. 

Sponsor Undertakings: 
The sponsor has extended undertakings to fund any shortfall in debt servicing in full and in the event of a delay in the receipt of grants from NMC. Additionally, the promoter has pledged 51% of the equity during the currency of the loan and the debt has been additionally secured by a corporate guarantee from the sponsor, during the construction period and one year after the SCOD or actual COD, whichever is later. 

Comfortable Debt Structure
:  Financial risks take the form of annual variable interest rate linked to the base rate of the lead bank. Any violent fluctuations in interest rates, absent sponsor support, would be credit negative. The rating also factors in the presence of an upfront debt service reserve equivalent to one-quarter of principal and interest payments and a standard waterfall mechanism. While the debt tenor is 16 years, concession period is for 32 years, which mitigates the tail risk. 


RATING SENSITIVITIES

Positive: Sustained timely receipt of grants could lead to a rating upgrade. 

Negative: Any significant delay in project completion, delays in grants and absence sponsor support will trigger a rating downgrade.


COMPANY PROFILE

NWWMPL is a joint venture company formed by Vishvaraj Environment Private Ltd, Vishvaraj Waste Water Management Private Ltd and Drake & Scull Water and Power Ltd. NWWMPL has been granted a 32-year design-build-fund-operate-transfer concession by NMC for the state of Maharashtra. This is the first of its kind project awarded under build-operate-transfer annuity in India. The total project cost of INR2,358.1 million is being funded with equity of INR708.1 million and debt of INR1,650 million. Vishvaraj Infrastructure Limited is the project sponsor.



COMPLEXITY LEVEL OF INSTRUMENTS

For details on complexity level of the instruments please 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.

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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