By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has affirmed Andhra Pradesh Expressways Ltd.’s (APEL) non-convertible debentures (NCDs) as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Series D to G Senior NCDs*

-

-

-

INR2,658

IND AAA(SO)/Stable

Affirmed

Series C NCDs

-

-

-

INR1,147

WD

Withdrawn (paid in full)

*Details in Annexure
The bonds have been issued in the form of rated, listed, secured, redeemable NCDs. 

KEY RATING DRIVERS

Satisfactory Performance: The project has performed in line with Ind-Ra’s base-case expectations. This includes timely receipt of (16th) semi-annual annuity from National Highways Authority of India (NHAI; 'IND AAA’/Stable), timely redemption of Series C bonds, and maintenance of reserves as envisaged in the initial NCD structure, i.e. a debt service reserve of INR600 million and a major maintenance reserve of INR260 million. 

Sponsor Support:
Recently, Cube Highways and Infrastructure Pte Ltd. (Cube Highways) bought IL&FS Transportation Networks Limited’s (ITNL: ‘IND A’/Negative) 100% stake in APEL. Cube Highways is promoted by I-Squared Capital (80%) and International Finance Corporation (20%). I-Squared Capital is an independent global infrastructure fund with focus on energy, utility and transport sectors in the US, Europe and select high growth economies such as China and India. International Finance Corp is the private sector arm of the World Bank. Overall, the financial strength and willingness of the sponsors bolster the rating. The sponsor has provided support undertakings for cost overruns in major maintenance. Simultaneously, Cube Highways and its affiliates have infused an amount of INR1,250 million through a subordinated debt. 

Some other changes quoted in the debenture trustee deed include the substitution of ITNL with Cube Highways for providing sponsor support undertakings in favour of the project. All sponsor undertakings in the transaction have been replaced with similar undertakings from the new sponsor. All reserve requirements in the transaction would be unchanged and if the new sponsor brings in any additional funds in APEL in the form of debt, the same would be subordinated to NCDs, and serviced only out of the proceeds lying in the distribution account, subject to adequacy of all reserves and relevant financial covenants being met. The sponsor debt would not carry any default calling rights on APEL till the time NCDs are redeemed in full.
 

Limited Operational Risks:
APEL has a fixed-rate operations contract with Feedback brisa Highways OMT Pvt. Ltd. and routine maintenance activities will be carried out in-house. Also, any deductions in annuity for non-conformance to lane availability norms and maintenance requirements will be borne by Cube Highways.  Cost overrun-related risks are mitigated by Cube Highway's undertaking to finance O&M cost overruns without recourse to the project's revenue and assets. 

Strong Counterparty; Limited Revenue Risk:
The project annuities are secured through an escrow account of the fixed, semi-annual annuity streams under a concession agreement from a highly rated counterparty, NHAI. The company so far has received 16 half-yearly annuities of INR565.20 million each, without any material performance deductions. 


RATING SENSITIVITIES

Negative: The credit quality of the sole revenue-counterparty and the discharge of its contractual obligations under the concession are important credit considerations. Hence, any negative rating action on NHAI will result in a downgrade of the rating on NCDs. 

Absent sponsor support and non-availability of a back-up mechanism for performance warranties will also result in a rating downgrade.


COMPANY PROFILE

APEL is an SPV, incorporated to design, construct (including lane expansion), finance, operate and maintain a 75km stretch between Kothakota by-pass and Kurnool in Andhra Pradesh on National Highway 7, under a 20-year concession NHAI, signed in March 2006. It is a build-operate-transfer project and its revenue is based on the availability model where NHAI will pay fixed semi-annual annuities of INR565.20 million each. The project achieved provisional completion on 30 September 2009. 

FINANCIAL SUMMARY
 

Particulars

FY17

FY16

Revenue from operations (INR million)*

541.2

1,429.5

Total income (INR million)

658.0

1,612.4

EBITDA (INR million)

558.9

1,069.5

EBITDA margin (%)

84.94

66.33

Source: Company

 

 

*Revenue from operations includes operations and maintenance income, finance income and periodic maintenance income. Pending annuity receipts from NHAI have been mentioned as other financial assets as per the Ind-AS.


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

5 October 2016

3 August 2015

4 July 2014

Series D to G senior NCDs

Long-term

INR2,658

IND AAA(SO)/Stable

IND AAA(SO)/Stable

IND AAA(SO)/Stable

IND AAA(SO)/Stable

Series C senior NCDs

Short-term

INR1,147

WD

IND A1+(SO)/Stable

IND AAA(SO)/Stable

IND AAA(SO)/Stable

ANNEXURE

ISIN Number

Date of Issue

Coupon Rate* (%)

Maturity date

Issue Size (million)

Rating/Outlook

Rating Action

INE400K07036

8 November 2012

10.00

15 April 2017

INR1,147

WD

Withdrawn

INE400K07044

8 November 2012

10.00

15 October 2018

INR711

IND AAA(SO)/Stable

Affirmed

INE400K07051

8 November 2012

10.00

15 October 2022

INR1,380

IND AAA(SO)/Stable

Affirmed

INE400K07069

8 November 2012

10.00

15 October 2024

INR461

IND AAA(SO)/Stable

Affirmed

INE400K07077

8 November 2012

10.00

15 October 2025

INR106

IND AAA(SO)/Stable

Affirmed

*payable semi-annually


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels 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.

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, structured finance and project finance companies. 

Headquartered in Mumbai, Ind-Ra has six branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

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

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ 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.

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