By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has undertaken the following rating actions on Ulundurpet Expressways Private Limited’s (UEPL) debt facilities:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Secured, rated, unlisted, redeemable non-convertible debentures (NCDs)*

-

9.90

January 2025

INR2,647

IND AA-/Stable

Upgraded

Rupee term loan

-

-

September 2025

INR1,456.7

IND AA-/Stable

Assigned

Subordinated rupee term loan

-

-

September 2025

INR380

IND AA-/Stable

Assigned

Long-term project bank loan

-

-

-

INR1,636.813

WD

Withdrawn (paid in full)

Additional term loan

-

-

-

INR416

WD

Withdrawn (paid in full)

* The details of the NCDs are given in Annexure.

The upgrade reflects a change in the debt profile, including reduced interest rates, revised repayment profile, longer loan tenor, timely completion of first lifecycle costs and timely creation of increased debt service reserve, despite negative revenue growth and upward revision of toll rates, effective 1 September 2017, based on the wholesale price index (WPI) of 5.7%.

KEY RATING DRIVERS

Debt Structure: In FY17, UEPL has taken an additional debt of INR380 million for meeting the major maintenance expenses of the project. The additional debt of INR380 million, along with an existing outstanding long-term project bank loan of INR1,456.7 million, was refinanced. The repayment commenced in April 2017 and shall mature in September 2025, leaving a one-and-half-year tail period. The debt structure risk is mitigated, with the debt amortisation schedule structured to suit the expected cash flow (including annual premium payments) and a debt service reserve account equivalent to meet the next six and three months of debt service obligations for the NCDs and the rupee term loans, respectively.

Established Operational Track Record: The project registered a strong revenue CAGR of 7.61% for FY11-FY17. The actual FY17 revenue was lower than the projected revenue, as the tolling on the stretch was affected due to demonetisation. The loss of revenue due to demonetisation has not been included in FY17 revenue. Based on the revenue recorded for FY11-FY17, Ind-Ra expects reasonable medium-term revenue growth, as toll rates are 100% linked to the WPI, thereby leading to adequate coverage metrics. The amortisation profile is sculpted to factor in the fixed premium payments (payable until FY19) to National Highways Authority of India (NHAI; ‘IND AAA’/Stable). The project’s 1HFY18 toll revenue at INR628 million was 8.7% higher on a year-on-year basis. Ind-Ra’s projections for FY18 are based on year-to-date toll revenue figures (year to date: 30 September 2017).

First Major Maintenance Completed, Albeit at Higher Cost: UEPL completed its first major maintenance cycle in September 2016, although at a higher cost. Although the estimated major maintenance expenses over FY14-FY18 were INR456 million, the actual cost was 35% higher, primarily because major maintenance had to cover the 100% overlay, as directed by NHAI, instead of the originally agreed overlay of 50%.

Reputed Sponsors: UEPL is 100% sponsored by India Infrastructure Fund (IIF), a fund managed by IDFC Alternatives Limited (IAL). IIF manages an infrastructure equity fund worth over INR38,000 million and has an investment of over INR7,500 million across eight operational road assets. IAL, a wholly owned subsidiary of IDFC Ltd, is IDFC’s alternative asset management vertical that manages over USD3 billion on behalf of leading institutional investors from across the world.

Material Traffic Risk:
The traffic has increased each year since FY12, barring flat growth in FY16 and negative growth in FY17. The negative growth in FY17 was primarily due to a 24-day toll suspension by the government of India during demonetisation. However, traffic numbers during the demonetisation period were not included in FY17. Passenger vehicles accounted for 47.7% of the total traffic between FY11-FY17 in vehicular count and 20.6% of revenue. Passenger vehicle traffic has more resistance to economic downturns. The connection the project provides to important business districts of south India and the launch of an online portal to address illegal sand mining have been favourably factored in. The toll rates are 100% linked to the WPI, along with an annual increase provision in the concession.


RATING SENSITIVITIES

Positive: Significantly higher revenue than Ind-Ra’s estimates on a sustained basis could lead to a positive rating action.

Negative: Future developments that could, individually or collectively, lead to a negative rating action are:
- lower-than-expected revenue on a sustained basis;
- higher operating costs than Ind-Ra’s base case projections; and
- material re-gearing.


COMPANY PROFILE

UEPL is a special purpose vehicle that has been incorporated for the construction and operation of a four-lane 72.9km stretch that connects Tindivanam and Ulundurpet in Tamil Nadu. The toll road is a part of NH 45 that connects Chennai to Trichy and Madurai. The 20-year long concession (maturing in January 2027) was awarded to the GMR Group in 2006 by NHAI, pursuant to an international competitive bidding.

In February 2014, the GMR Group divested 74% of its stake in the project to IIF. In October 2016, IIF acquired the remaining 26% stake in UEPL, thereby owning 100% equity. Following the receipt of the provisional completion certificate, UEPL commenced tolling on the stretch on 23 July 2009. The final completion certificate was issued on 4 August 2016.


FINANCIAL SUMMARY

Particulars

FY17

FY16

Revenue from operations (INR million)

1,087.8

1,149.3

Total income (INR million)

1,114.9

1,168.7

Profit after tax (INR million)

-131.0

87.3

Source: UEPL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

21 November 2016

8 September 2015

26 March 2015

Secured, rated, unlisted, redeemable NCDs

Long-term

INR2,647

IND AA-/Stable

IND A+/Stable

IND A+/Stable

Provisional IND A+/Stable

Rupee term loan

Long-term

INR1,456.7

IND AA-/Stable

-

-

-

Subordinated rupee term loan

Long-term

INR380

IND AA-/Stable

-

-

-

Long-term project bank loan

Long-term

INR1,636.813

WD

IND A+/Stable

IND A+/Stable

Provisional IND A+/Stable

Additional term loan

Long-term

INR416

WD

IND A+/Stable

-

-

ANNEXURE

Instrument

ISIN

Date of Issue

Coupon Rate (%)

Maturity Date

Issue Size (million)

Rating/Outlook

Rating Action

NCDs

NE845H07012

20 October 2017

9.90

January 2025

INR1,938.3

IND AA-/Stable

Upgraded

NCDs

NE845H07012

20 October 2017

9.90

January 2025

INR708.7

IND AA-/Stable

Upgraded


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.

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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

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121