| Ashoka Sambalpur Baragarh Tollway Limited | ||||
| Rating continues on 'Watch Developing' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has continues its rating on the bank facilities of Ashoka Sambalpur Baragarh Tollway Limited (ASBTL) on ‘Rating Watch with Developing Implications’.
The rating continues to reflect the impact of an announcement by Ashoka Buildcon Limited (ABL; ‘CRISIL AA-/CRISIL A1+/Stable’) on December 25, 2021 that Ashoka Concessions Limited (ACL; ‘CRISIL AA-(CE)/Stable’), a material subsidiary of ABL, has entered into share subscription and share purchase agreements (SPAs) with Galaxy Investments II Pte Ltd, an affiliate of Kohlberg Kravis Roberts & Co. LP (KKR), for sale of the entire share capital held in five subsidiaries of ACL i.e., ASBTL, Ashoka Highways (Durg) Limited (‘CRISIL BBB/Watch Developing’), Ashoka Highways (Bhandara) Limited (‘CRISIL A-/Watch Developing’), Ashoka Belgaum Dharwad Tollway Limited, and Ashoka Dhankuni Kharagpur Tollway Limited, for an aggregate consideration of Rs 1337 crore.
The proceeds from the sale would be utilised to provide an exit to Macquarie SBI Infrastructure Investments Pte Ltd and SBI Macquarie Infrastructure Trust (SBI Macquarie), which together own 34% shareholding in ACL. Around Rs 1,200 crore of the total consideration of Rs 1,337 crore, would be utilised towards providing full exit to SBI Macquarie from ACL. The aggregate consideration will also include repayment of any shareholder loans held in these five subsidiaries. The deal is expected to be concluded by first half of this fiscal (previously expected to be concluded by September 2022) subject to National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable’) approval, lender consent and satisfaction of certain conditions precedent. The delay is majorly on account of approvals pending from the authorities end which is expected to be in place in the coming months. CRISIL Ratings has fully consolidated debt in subsidiaries guaranteed by ABL/ACL in its assessment. Such debt associated with five subsidiaries in concern is expected to come down post conclusion of the transaction. Further, ACL has executed a SPA with National Investment and Structure Funds for sale of equity of Jaora Nayagaon project for an aggregate consideration of RS. 691 crores and has signed an SPA with National Investment and Infrastructure Fund Ltd for sale of GVR Ashoka Chennai Outer Ring Road for Rs 686 crore in fiscal 2023.
The impairments due to the sale of the five BOT assets and from the exit provided to SBI Macquarie have already been accounted in the profit and loss statement of ABL and ACL in the previous fiscals; CRISIL Ratings expects no further impairment due to this transaction. Further, ABL has about Rs 2,000 crore claim on the subject five BOT assets, which will not be transferred to KKR. Any cash inflow with realisation of these claims will remain key monitorable.
The rating continues to reflect the strong commitment of operational and financial support from the parent, ACL, through an unconditional and irrevocable guarantee and an undertaking to meet all debt obligation in a timely manner over the tenure of the loan. CRISIL Ratings will monitor the progress on the transaction and will understand the stance of support from new sponsor and credit profile of new sponsor. The watch shall be resolved once more clarity on these aspects is available. Any adverse movement in the credit risk profile of the guarantor, ACL, and non-adherence to the payment mechanism will remain key rating sensitivity factors. |
Analytical Approach For arriving at the rating, CRISIL Ratings has applied its criteria on rating instruments backed by guarantees. The CE suffix indicates credit enhancement by way of extension of an unconditional and irrevocable corporate guarantee by ACL. The guarantee and the undertaking cover the payment structure which is designed to ensure full and time-bound payment to the debenture holders. CRISIL Ratings has introduced the 'CE' suffix for instruments having explicit credit enhancement feature in compliance with the circular of Securities and Exchange Board of India dated June 13, 2019.
For arriving at the rating on ACL, CRISIL Ratings has combined the business and financial risk profiles of ACL and ASBTL, as ACL has extended an unconditional and irrevocable corporate guarantee to ASBTL to support the project over the tenure of the loan. ACL, in turn, will receive support from ABL, the majority shareholder. ACL is strategically important to ABL as ABL derives a large part of its revenue from the construction of projects housed under ACL. ABL will likely extend support to meet equity requirement and cash flow mismatches in ACL.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Unconditional and irrevocable corporate guarantee, and undertaking, provided by ACL ACL has extended an unconditional and irrevocable guarantee to meet all debt obligation of ASBTL in a timely manner, apart from an undertaking that includes a payment mechanism, which ensures full and time-bound payments to the lenders. As per this mechanism, if ASBTL is unable to make payment, ACL shall make all necessary payments within 10 calendar days from the due date, irrespective of the lender invoking the guarantee.
Unconditional and irrevocable guarantee by the sponsors will remain a key rating sensitivity factor. CRISIL will understand the stance of support from new sponsor and will factor that during resolution of watch.
Diversified project portfolio of ACL ACL holds six toll road projects (of which 5 are being sold to KKR affiliate) and seven hybrid-annuity model (HAM) projects. All the toll road projects have been operational for more than five years and four of them have moderate toll collection and moderate to healthy debt service coverage ratio (DSCR). Surplus cash flows from these projects provide financial flexibility to meet any support requirement for the underlying portfolio. Five of the six projects have shown good recovery with toll collection reaching the pre-Covid levels and registering sustained and moderate growth thereafter.
Of the seven HAM projects, six are operational and one is under construction. Implementation risk in the under-construction projects is minimized due to the inherent benefits of HAM, including right-of-way, reduction of scope and price indexation on bid project cost, mitigate the risk. Furthermore, ABL is the engineering, procurement and construction (EPC) contractor for the projects and has a strong track record of two decades in the execution of build, operate and transfer (BOT) projects. This limits the implementation risk.
Comfortable financial risk profile The financial risk profile of ACL is supported by a healthy capital structure. Total debt as on March 31, 2022, stood at Rs 1,019 crore, comprising Rs 250 crore of non-convertible debentures (NCDs) backed by a corporate guarantee from ABL and unsecured loans from ABL and group companies. Low debt and a networth of Rs 820 crore as on March 31, 2022 resulted in moderate gearing of 1.24 times.
ACL undertakes project management of its under-construction projects, and tolling and operations of operational projects. It earlier managed a portfolio of toll collection contracts from NHAI. However, revenue contribution from these contracts have declined in the past three fiscals, impacting the operating performance. Furthermore, the company has reported net loss since fiscal 2019 on account of exceptional losses (mainly non-cash impairment towards equity investment in ASBTL and expenses on assured return to be provided to investor SBI Macquarie). However, the losses and part of the support requirements of ACL towards its projects have been funded by ABL.
Weakness: Large equity and support requirements of ACL ABL is likely to invest around Rs 600 crore over fiscals 2024 to 2026, towards equity commitment of ongoing HAM projects along with financial support for meeting cash flow mismatches at the underlying SPVs. Major maintenance works in three projects were completed in the last two fiscals while it is being taken up for three BOT projects in the current fiscal.
ABL has been infusing the entire equity commitment towards HAM projects under ACL, including the share of SBI Macquarie. Funds from the new investor/KKR is likely to reduce the outflow from ABL towards equity and support requirement in the projects. Any delay in the conclusion of the monetisation plan is likely to increase debt, thereby weakening capital structure of ABL. Hence, timely conclusion of monetisation of the identified assets is a rating sensitivity factor.
Susceptibility of ASBTL to volatility in toll collection and interest rates Toll collection is the single source of revenue for the project. Hence, any fluctuation in toll revenue, driven by lower traffic volume or toll rate revision will adversely impact cash flow and, in turn, the debt servicing capability. Any change in government policy (such as the demonetisation of high-value currency notes in November 2016) or unforeseen circumstances such as Covid-19 can adversely impact cash flow and debt protection metrics.
Volatility in traffic volume was witnessed in the past with the mining ban in Odisha in fiscals 2015 and 2016 and Covid impact in 2019 and 2020. In fiscal 2021 and 2022, toll collection reached the pre-Covid level and has recorded sustained growth, thereafter, with toll collection in fiscal 2023 higher by 30% with reopening of the economy, increased traffic and higher toll rate by 10%. Traffic is expected to pick up over the medium term given the several new mining bids up in the region.
The project loan has a floating interest rate, which is subject to changes in the economic scenario and may impact the DSCR, and will remain a key rating monitorable. However, the unconditional and irrevocable guarantee along with an undertaking from ACL to service the debt in a timely manner will support the credit risk profile of ASBTL. |
Liquidity: Adequate Liquidity is aided by strong financial support from ACL, backed by an unconditional and irrevocable guarantee. Although, at a project level, the average DSCR is less than 1 time over the tenure of the loan, ACL will fund the shortfall as stipulated by the payment mechanism. The track record of support has been demonstrated since fiscal 2016 and is expected to continue.
ACL’s cash accrual and surplus from the operationally surplus projects will meet part of the support requirements of the deficit projects. Furthermore, ABL is likely to support any cash flow mismatch in ACL. Equity commitment in the BOT projects in the past had been met though ABL and SBI Macquarie in the proportion of their shareholding in ACL (SBI Macquarie has infused Rs 800 crore in ACL). As SBI Macquarie is slated to exit from ACL following the recent announcement, ABL has been funding the equity commitment and support requirement in the interim and will continue to do so till the monetisation plan is concluded. However, KKR Affiliate’s stance for providing a corporate guarantee to ASBTL, post-sale of asset, is yet to be determined. |
Rating Sensitivity factors Upward factors
Downward factors
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Adequacy of credit enhancement structure The rating continues to be based on the unconditional, continuing and irrevocable guarantee extended for the loans by the parent to ensure full and timely payment of all amounts due to the lender on the due dates, and an unconditional undertaking securing the principal repayment and interest payment related to the entire debt. The payment structure is designed to ensure full and timely payment to the lender.
According to the payment mechanism in the undertaking, the guarantor, ACL, shall monitor if the borrower. ASBTL, has made all the necessary payments on the due dates. If the borrower is unable to pay, ACL shall ensure that the necessary payments are made not later than 10 business days from the due date, irrespective of the lender’s bank invoking the guarantee. The guarantee and the undertaking together cover the principal, interest, and other monies payable under the loan. |
Unsupported ratings CRISIL B+ CRISIL has introduced 'CE' suffix for instruments having explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019. |
Key drivers for unsupported ratings
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About the Company ASBTL is an SPV of ACL, set up to undertake construction, conversion to four lanes, operations and maintenance (O&M) work of the Sambalpur-Baragarh stretch of National Highway (NH)-6 (from 0 to 88 kilometre) in Odisha under the National Highways Development Project (NHDP) Phase III on a BOT basis. The concession period for the project is 30 years (including 30 months for construction) with an annual premium payout of Rs 1.78 crore (due in fiscal 2021) to NHAI with a 5% increment each year.
The project cost of Rs 1,142 crore was funded through a term loan of Rs 810 crore, equity of Rs 167 crore, and zero-interest shareholder loan of Rs 167 crore. The company had received provisional completion certificate and commenced tolling in October 2014. It received full completion certificate and started tolling on the complete stretch from June 2016. |
About the Parent- ACL Ashoka Concessions Limited (ACL) was set up in November 2011 as a subsidiary of ABL, where six BOT projects were transferred to the former. SBI Macquarie also infused Rs 800 crore (39% stake at the time of entry), and ACL acted as an exclusive BOT project developer for both ABL and SBI Macquarie. Out of 11 HAM projects awarded to ABL, seven were housed under ACL. Currently, ACL has entered into a deal with KKR, for sale of the entire share capital held in five toll projects held under ACL for an aggregate consideration of Rs 1,337 crore which will provide an exit to SBI Macquarie (34% shareholding in ACL) at Rs. 1,200 crore.
About the ultimate parent, ABL ABL, incorporated in 1993, engineered and constructed residential, commercial, industrial, and institutional buildings until 1997. The company won its first BOT project in 1997. Currently, operations comprise BOT and EPC road projects, EPC power T&D projects, collection of toll on roads and bridges owned and constructed by third parties, and manufacturing of ready-mix concrete. The company also ventured into the commercial gas distribution business in 2016 by winning its first order to build and operate a gas distribution network in Ratnagiri district, Maharashtra. Additionally, the company entered into executing smart city construction projects in 2016.
ABL is listed on both the Bombay Stock Exchange and National Stock Exchange. It has significant experience in executing road projects across India and has constructed more than 11,800 lane km till date. This is also reflected in its outstanding BOT/HAM portfolio of 23 projects (including ACL assets). In the EPC division, ABL constructs roads and bridges for its own BOT projects as well as for third parties. It also executes EPC projects in the power distribution space for various state governments. |
Key Financial Indicators for ASBTL (CRISIL Ratings adjusted)
Financial indicators for ACL (CRISIL Ratings adjusted)
PAT is low due to exceptional expenses of Rs 400 crore and Rs 110 crore in fiscals 2022 and 2021 respectively |
List of covenants The material covenants of the instruments are as follows:
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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This Annexure has been updated on 28-Apr-23 in line with the lender-wise facility details as on 30-Aug-21 received from the rated entity
Criteria Details
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