By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has assigned final ratings to Jorbat Shillong Expressway Limited’s (JSEL) senior and subordinated non-convertible debentures (NCDs) as follows:

Instrument Type

Date of Issuance

ISIN Number

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Senior NCDs*

-

-

-

-

INR6,412

IND AAA(SO)/Stable

Assigned

Subordinated NCDs*

-

-

-

-

INR2,421.6 (reduced from INR2,488)

IND AAA(SO)/Stable

Assigned

Senior long-term rupee loans

-

-

-

March 2027

INR7,000

WD

Withdrawn (paid in full)

Subordinated loans

-

-

-

March 2027

INR400

WD

Withdrawn (paid in full)

The assignment of final ratings is based on the receipt of executed financing documents, transaction and project documents, including the legal opinion on the validity of transaction and structure, and an opinion related to taxation.
*Details in annexure

KEY RATING DRIVERS

Stable Revenue Profile: The ratings reflect limited revenue risk as the revenue will be derived from the availability-based semi-annual annuity payments of INR725.1 million from the strong authority National Highways Authority of India (NHAI; ‘IND AAA’/Stable). The payments are subject to deductions for underperformance and lane unavailability. Of the four annuities received from NHAI post the receipt of a provisional commercial operations date, three were in time and in full and a nominal amount was deducted from the fourth annuity due to performance-related issues. The management has informed NHAI that the deduction was due to the reasons beyond their control and the same has been represented to NHAI. However, as per the terms of NCDs, the sponsor has infused the shortfall amount into JSEL. Ind-Ra draws comfort from JSEL's fixed-price routine operation and maintenance contract with the sponsor IL&FS Transportation Networks Ltd (ITNL; 'IND A'/Negative) and the latter's reasonable operating track record of 16 years. 

Demonstrated Support for Funding Cost Overruns:
ITNL’s unconditional and irrevocable undertaking to fund cost overruns till project completion limits the risk related to arrange funding for residual construction. ITNL has also provided an undertaking to fund construction cost overruns, if the construction cost exceeds the construction reserve. According to Lenders Engineer Report of September 2017, the project company has incurred INR14,737 million against the original estimated project cost of INR8,240 million and the entire cost overrun has been funded by ITNL. According to management, pending work in the project would require around an additional INR150 million; this has been set aside from the proceeds of the issuance (construction reserve). 

NHAI has already provided the balance portion of the land, and according to the management, residual construction will be complete by 30 April 2018. Any liability on account of non-performance or construction completion will be on ITNL. 

Sponsor Support:
ITNL’s undertaking to finance operations and maintenance (O&M) and major maintenance cost overruns without recourse to the project's revenue and assets mitigates the maintenance cost overrun-related risks. ITNL has also undertaken to cover any cost overruns in fixed price periodic and major maintenance contracts, any deductions in annuities due to a performance shortfall, and any shortfall between termination payments that may be received from NHAI due to an event of default and total debt outstanding at the point of termination. Absent sponsor support on a timely basis and any significant deterioration in ITNL’s credit quality would result in a negative rating action. 

Performance-related Risks Mitigated:
Any increase in the routine O&M expenses over and above the contracted value will be passed on to the O&M contractor. Also, any deduction from NHAI for the reasons attributable to the O&M contractor will lead to a deduction in the payment to the O&M contractor. JSEL has entered into an O&M and major maintenance fixed price contracts with ITNL prior to the NCD issuance and this agreement will be applicable through the life of NCDs. The adequacy of O&M and major maintenance costs has been certified by a third-party engineer. 


Minimal Residual Completion Risk:
JSEL had received a provisional commercial operations date for 55.94km out of 61.8km in January 2016. According to LIE report, the delay in the completion of pending work is mainly attributed to the government of Meghalaya/Authority for the delay in handing over the land required for Umsning bypass and toll plaza. According to management, the land for Umsning bypass has been handed over to the project company and 4.6km out of 5.24km is already completed and pending work is expected to be completed by April 2018. Residual completion risk is minimal, as a construction reserve of INR150 million has been created. 

Debt Structure:
The debt repayment commenced in March 2018 and the loan will be fully repaid in 25 unequal semi-annual instalments up to January 2030. The repayment (principal and interest) shall be made after one month and three days from the date of receipt of annuity, providing sufficient cushion is available against any potential delays in the receipt of annuities. Though the debt service coverage ratio shows limited ability to withstand revenue deductions, ITNL’s strong experience in operating and maintaining road projects and a track record of receiving full and timely annuities for its other projects provide comfort. A major maintenance reserve shall be created from annuity receipts. Major maintenance testing shall be done in the cycle of every five years i.e. FY19-FY23, FY24-FY28 and FY29-FY33. Unutilised funds, if any, shall be released at the end of each such cycle, after setting aside the budgeted major overlay expenses for the next financial year. 

The presence of a debt service reserve account equivalent to peak six months principal and interest payments provides cushion in case of any delay in receipt of annuity. The same has been invested in liquid debt mutual funds. The company will have an option of replacing the same, either in full or in part, with an unconditional and irrevocable guarantee, having no recourse to project assets, cash flows. The bank guarantee can be provided by the institutions rated ‘AA-’ and/or above. However, this will be subject to a stipulation that if the guarantee is not rolled over, it will be encashed by JSEL’s debenture trustees 30 days prior to its maturity and thereon will be maintained in cash in JSEL till the tenor of the NCDs.

There will be no further borrowings by JSEL other than IL&FS Group borrowings and additional external indebtedness as permitted by the authority. 


RATING SENSITIVITIES

Negative: A negative rating action could result from any of the following events:
- any deduction in annuities on account of non-performance/lane non-availability
- a failure to comply with various sponsor support undertakings and lack of timeliness in support requirements
- significant deterioration of the sponsor’s rating i.e. to BBB category
- deterioration in the credit profile of NHAI
- any deductions by NHAI, not being reimbursed by ITNL within 15 days of such a deduction


COMPANY PROFILE

JSEL is a special purpose company, incorporated to implement a lane expansion project under the build-operate-transfer annuity model. The company is jointly sponsored by ITNL (50%) and Ramky Infrastructure Ltd (50%). JSEL has a 20-year concession (expiring in January 2031) from NHAI to design, construct, develop, finance, operate and maintain a 61.8km stretch between Jorbat (Assam) and Barapani (Meghalaya) on National Highway-40. The original commercial operations date envisaged for the project was 10 January 2014; however, it was extended by two years to 10 January 2016. 

FINANCIAL SUMMARY

Particulars

FY17

FY16

Revenue from operations (INR million)

988.85

1,139.54

Total income (INR million)

1,821.43

2,114.84

EBITDA (INR million)

1,220.69

1,769.90

EBITDA margin (%)

67.01

83.69

Source: Company

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

13 November 2017

28 October 2016

15 September 2015

Senior NCDs

Long term

INR6,412

IND AAA(SO)/Stable

Provisional IND AAA(SO)/Stable

-

-

Subordinated NCDs

Long term

INR2,421.6

IND AAA(SO)/Stable

Provisional IND AAA(SO)/Stable

-

-

Senior long-term rupee loans

Long term

INR7,000

WD

IND A/Stable

IND A/Stable

IND BBB+/Stable

Subordinated loans

Long term

INR400

WD

IND A-/Stable

IND A-/Stable

IND BBB/Stable

ANNEXURE

Instrument

ISIN Number

Date of Issue

Coupon Rate

Maturity date

Issue Size (INR million)

Rating/Outlook

Rating Action

Senior NCDs

INE944Y07018

28 December 2017

8.3

1 March 2019

660.4

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07026

28 December 2017

8.3

28 February 2020

382.3

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07034

28 December 2017

8.3

1 March 2021

402.1

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07042

28 December 2017

8.3

1 March 2022

454.9

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07059

28 December 2017

8.3

1 March 2023

428.2

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07067

28 December 2017

8.3

1 March 2024

461.9

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07075

28 December 2017

8.3

28 February 2025

494.2

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07083

28 December 2017

8.3

27 February 2026

611.9

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07091

28 December 2017

8.3

1 March 2027

658.2

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07109

28 December 2017

8.3

1 March 2028

617.7

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07117

28 December 2017

8.3

1 March 2029

659.9

IND AAA(SO)/Stable

Assigned

Senior NCDs

INE944Y07125

28 December 2017

8.3

31 January 2030

580.3

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07133

28 December 2017

8.45

1 March 2019

249.5

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07141

28 December 2017

8.45

28 February 2020

144.4

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07158

28 December 2017

8.45

1 March 2021

151.9

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07166

28 December 2017

8.45

1 March 2022

171.8

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07174

28 December 2017

8.45

1 March 2023

161.8

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07182

28 December 2017

8.45

1 March 2024

174.4

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07190

28 December 2017

8.45

28 February 2025

186.6

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07208

28 December 2017

8.45

27 February 2026

231.1

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07216

28 December 2017

8.45

1 March 2027

248.5

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07224

28 December 2017

8.45

1 March 2028

233.3

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07232

28 December 2017

8.45

1 March 2029

249.2

IND AAA(SO)/Stable

Assigned

Subordinated NCDs

INE944Y07240

28 December 2017

8.45

31 January 2030

219.1

IND AAA(SO)/Stable

Assigned

Total

 

 

 

 

8,833.6

 

 


COMPLEXITY LEVEL OF INSTRUMENTS

For details on complexity level of the instruments please visit 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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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. 

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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

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121