By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has affirmed Sikar Bikaner Highway Ltd’s (SBHL) bank loan as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Senior project bank loan

-

-

-

INR4,000

IND BBB/Stable

Affirmed

KEY RATING DRIVERS

Moderate Revenue Risk: The project has been operational since October 2015. At the time of operations, the new traffic estimates were revised downward due to the economic slowdown and traffic diversion on the alternate road network. The base year revenue and FY17 revenue growth were in line with the revised estimates. Toll revision is linked to a pre-fixed escalation of 3% annually and (40%) Wholesale Price Index. However, the project, being a toll road project, has an inherent traffic-related volume risk.

Timely Sponsor Support
: The project sponsor - IL&FS Transportation Networks Limited (ITNL, ‘IND A’/Rating Watch Negative) – has a demonstrated track record of supporting the project and the undertaking to bridge the deficits in major maintenance. ITNL, in FY17, converted the sub-debt into interest-free debt with an equity conversion option. This not only enabled SBHL to retain a debt service reserve account of INR110 million but also reinforced ITNL’s commitment towards the project. Ind-Ra’s base case projections indicate the need for sponsor support till the end of first major maintenance to bridge any shortfall in debt servicing. The demonstrated track record of ITNL in supporting (both contractual and non-contractual) its special purpose vehicles helps the project tide over cashflow mismatches.

Moderate Operation & Maintenance Risk
: The operation and maintenance of the project stretch is contracted to ITNL under a fixed-rate contract for the entire concession period. Ind-Ra believes the maintenance requirement is straight forward, given the less complex road structures on the project corridor. The project’s operating expenses in FY17 and 9MFY18 were in line with Ind-Ra’s base case projections. Only one periodic maintenance cycle is proposed during the loan tenure.

Favourable Debt Structure
: Subsequent to delays in the scheduled commercial operations, the principal repayment was shifted to June 2017 from June 2016 and is being amortised over 42 unequal quarterly instalments from June 2017. The project is exposed to a variable interest rate. The project has a debt-free tail of nine years, longer than most of its peers’. The rating factors in the proposed refinancing plan of the company and therefore the incentive available to the sponsors to provide non-contractual support, if needed. In addition, the presence of a debt service reserve account of INR110 million, equivalent to one quarter debt service obligations, provides cushion in case of a cash flow mismatch.

Minimal Residual Construction Risk
: The company had received the provisional completion certificate for 99% of the project stretch on 16 August 2016. Subsequently, it completed the balance work including the pending 420m of work which was part of the change of scope and only portion pending as on September 2017. The company has applied for a final completion certificate and expects to receive the same by March 2018.


RATING SENSITIVITIES

Positive: Sustained traffic performance, allowing the project to generate sufficient cash flow for debt service without resorting to sponsor support, could result in a positive rating action.

Negative
: Sustained material traffic underperformance, absent timely sponsor support, any significant weakening of the sponsor’s credit profile and depletion of DSRA could result in a negative rating action.


COMPANY PROFILE

SBHL is a special purpose company incorporated to undertake the widening and operations of a combination of a two-lane and four-lane highway (National Highway–NH 11) in Rajasthan. The concession grantor is the public works department of the government of Rajasthan. The concession is for a period of 25 years, with a right to collect toll during the concession. The security and terms of the subordinate debt agreement is junior to the senior debt. SBHL is 100% owned by ITNL.
 

FINANCIAL SUMMARY

 

Particulars

FY17

FY16

Revenue from operations (INR million)

523.82

2,349.47

Total income (INR million)

527.59

2,349.54

EBITDA (INR million)

182.82

281.51

Source: Company

*FY16 revenue includes construction income as per Ind-AS


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

28 December 2016

27 October 2015

1 September 2014

Senior project bank loan

Long-term

INR4,000

IND BBB/Stable

IND BBB/Stable

IND BBB/Stable

IND BBB/Stable


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. 

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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