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

*Details are given in Annexure

The bonds have been issued in the form of rated, listed, secured, redeemable NCDs

APEL proposes to distribute cash flows of INR460 million from residual surplus of INR602 million through capital reduction route, which is allowed as per the supplementary escrow agreement upon the satisfaction of a financial covenant. The covenant requires debt service coverage ratio (DSCR) of or above 1.08x for transferring surplus amount to distribution account. APEL has recently filed a petition with the National Company Law Tribunal, Mumbai to reduce its share capital, as allowed under section 66 and other relevant sections of the Companies Act 2013. The rating remains bolstered by the sponsor, Cube Highways and Infrastructure Pte Ltd.’s (Cube Highways) experience in operating and maintaining the project, including the fact that cost overruns or performance deductions will be the sponsor’s responsibility. The rating also factors in the robustness of project cash flows, including the counterparty National Highways Authority of India’s (NHAI; ‘IND AAA’/Stable) credit strength and creation of reserves as envisaged. Therefore, the said equity reduction, in the view of the agency, does not affect the debt rating. As per management, the NHAI is kept informed.

KEY RATING DRIVERS

Satisfactory Performance: The project has performed in line with Ind-Ra’s base-case expectations. This includes timely receipt of (17th) semi-annual annuity from, 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 INR402 million. The DSCR is in line with Ind-Ra’s expectations.


Sponsor Support: In March 2017, 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 Corporation is the private sector arm of the World Bank. Overall, the financial strength and willingness of the sponsors bolsters the rating. The sponsor has provided support undertakings for cost overruns in major maintenance. The sponsor debt does not carry any default calling rights on APEL.


Limited Operational Risks: APEL has a fixed-rate operations contract with Feedback Brisa Highways OMT Pvt. Ltd. and routine maintenance activities are being 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 operation and maintenance 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 NHAI. The company so far has received 17 half-yearly annuities of INR565.2 million each, without any material performance deductions. 

Debt Structure:
A debt service reserve account amounting to INR600 million (INR310 million in cash and INR290 million in form of bank guarantee provided by Cube Highways and Transportation Assets Advisors Pvt. Limited), controlled by the trustees (IDBI Trusteeship Co Ltd), established out of the issue proceeds lends strength to the rating. Bond documents include covenants that preclude additional borrowing and a dividend lock-up at 1.08x DSCR. Also, all distributions will be stopped until the reserve account, when utilised, is not fully replenished as per the transaction structure.


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.

Any action that may dilute Cube Highways’ holdings in APEL, whether by full or partial sale, will also lead to a negative rating action.


COMPANY PROFILE

APEL is a special purpose vehicle, 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

 

 

*Includes operations and maintenance, finance and periodic maintenance income. Pending annuity receipts from NHAI has been mentioned as other financial assets as per the Indian Accounting Standard. 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

22 September 2017

5 October 2016

3 August 2015

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

ANNEXURE

ISIN

Date of Issue

Coupon Rate* (%)

Maturity date

Size of Issue (million)

Rating/Outlook

Rating Action

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

Total

-

-

-

INR2,658

-

-

*Payable semi-annually


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the 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.

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

Ind-Ra is a 100% owned subsidiary of the Fitch Group.

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

    Venkataraman Rajaraman

    Senior Director and Head Infrastructure and Project Finance
    +91 44 43401702

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121