| Bharat Highways InvIT | ||||
| Rating Reaffirmed | ||||
| 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 reaffirmed its 'Provisional CRISIL AAA/Stable' rating on the long-term bank facility of Bharat Highways InvIT (Bharat InvIT) and extended its validity by 90 days. Bharat InvIT is an infrastructure investment trust of roads sector assets.
Bharat Highways InvIT is an Infrastructure Investment Trust (InvIT) of roads sector assets sponsored by Lokesh Builders Pvt Ltd (LBPL, or Sponsor) with effect from 8th December 2022, the largest shareholder (31.83% as on June 30, 2023) of G R Infraprojects Ltd (GRIL; 'CRISIL AA/Stable/CRISIL A1+'), with GR Highways Investment Manager Pvt Ltd (GHIMPL) as its Investment Manager, Lokesh Builders Private Limited acting as the Project Manager and IDBI Trusteeship Services Ltd as the Trustee.
Bharat InvIT had filed the draft offer document (DOD) with the Securities and Exchange Board of India (SEBI) on December 21, 2022. All terms and conditions highlighted in the DOD are in line with details provided to CRISIL Ratings at the time of reaffirmation and extension of provisional rating on December 09, 2022. However, with proposed subscription of units by the Sponsor, LBPL and reduction in debt levels over the last year in the seven hybrid annuity road assets1 that are to be acquired, debt to be availed by the InvIT is expected to be Rs. 2,000 crore compared to previous expectation of Rs. 3,000 crore.
Subject to necessary approvals from National Highways Authority of India (NHAI; rated ‘CRISIL AAA/Stable) and other stakeholders for transfer of shareholding of underlying project special purpose vehicles (SPVs), listing of the InvIT and refinancing of loans in underlying SPVs is expected to be completed by the end of September 2023. Necessary approvals from lenders are in place. Bharat InvIT has not raised any amount till date against the rated proposed bank facilities of Rs 3,000 crore. Any changes to the transaction vis-a-vis information provided at the time of reaffirmation of provisional rating will remain key monitorables.
The rating continues to reflect the strong and diversified portfolio of hybrid annuity road assets proposed to be transferred to the trust by GRIL. The portfolio has healthy revenue visibility, supported by operational track record of receiving at least one annuity from the National Highways Authority of India for all underlying assets. It also reflects the tri-partite fixed price O&M and major maintenance contracts with LBPL (project manager) and GRIL (O&M Contractor). These, coupled with adequate leverage, will result in strong debt protection metrics. As a large part of debt is proposed to be in Bharat InvIT, the debt-servicing ability will be strengthened by cash flow pooling from all the projects. As per the proposed terms, the debt is expected to be capped at 49% of the trust valuation till the first six distributions, which can be subsequently increased to 70% subject to compliance with InvIT regulations. With InvIT level debt expected to be at Rs. 2,000 crore, the portfolio is estimated to have comfortable leverage of 30-35%. Additionally, terms in the proposed financing documents stipulate maintenance of debt service reserve account (DSRA) equivalent to one quarter debt servicing, thereby providing liquidity cushion. The rating also derives strength from the experience of GRIL in managing and maintaining road assets.
These strengths are partially offset by susceptibility to volatility in interest rates and exposure of debt service coverage ratio (DSCR) to future acquisitions.
1The trust will have an initial portfolio of 7 HAM (hybrid annuity model) assets. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Bharat InvIT with its underlying special-purpose vehicles (SPVs) as the trust is expected to have direct control over these SPVs. The entire proposed debt is expected to be taken at the InvIT level. The debt, along with fresh equity infusion, will then be lent to the proposed SPVs as shareholder loans and will be utilised towards retiring existing external debt (apart from Rs ~800 crore of NCD [non-convertible debenture] that will continue till September 2024). The debt at InvIT level will be serviced from cash flows up-streamed from the underlying SPVs. The DSCR testing for the restricted payment conditions would be at the Bharat InvIT level. Also, as per the financing terms, the cap on borrowings has been defined at a consolidated level; aggregate consolidated borrowing for the InvIT and its SPVs is restricted at 49% of the valuation till the first six distributions, which can be subsequently increased to 70% subject to compliance with InvIT regulations.
Please refer Annexure - List of entities consolidated, which highlights entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Healthy operational track record of assets with strong counterparty The portfolio comprises 7 operational HAM assets. These assets have an operational track record of 0.5-3.5 years and are located across Gujarat (27%), Uttar Pradesh (25%), Maharashtra (18%), Andhra Pradesh (17%) and Punjab (13%), thereby providing geographical diversification. Additionally, no HAM asset is contributing more than 25% to the total annuity of the InvIT, and the balance concession period for the 7 assets (11.5-13.9 years) will provide long-term cash inflows to the InvIT.
The counterparty of all the assets is NHAI and the outlook on it reflects the outlook on the sovereign, which reduces counterparty risk. Additionally, due to the inherit benefits of HAM projects, the traffic risk has been assumed by NHAI, which provides stability and predictability in cash flows.
GR Phagwara Expressway Ltd (GPEL) has a track record of 6 annuities till date, while Porbandar Dwarka Expressway Pvt Ltd (PDEPL) has received 6 annuities and Varanasi Sangam Expressway Pvt Ltd (VSEPL) 5 annuities. GR Akkalkot Solapur Highway Pvt Ltd (GASHPL), GR Sangli Solapur Highway Pvt Ltd (GSSHPL) and GR Gundugolanu Devarapalli Highway Pvt Ltd (GDHPL) have received 4 annuities each and GR Dwarka Devariya Highway Pvt Ltd (GDDHPL) has received 1 annuity till date. The annuity payments from the seven HAM assets have been received without any substantial delay or material deduction. All projects have a debt-annuity ratio of 50-70%, making these favourably leveraged.
Strong debt protection metrics Financial risk profile is expected to be healthy, supported by comfortable average DSCR of more than 2 times throughout the tenure of the debt. This is on account of fixed annuity payments and moderate leverage of Rs ~2,000 crore expected at the trust level. As a large part of the debt is to be at the trust level, debt servicing will be supported by cash flow pooling of all projects under the InvIT structure. Due to the fixed nature of the annuities and a strong counterparty, all cash inflows (annuity payment from NHAI), interest on remaining annuity and inflation-adjusted O&M payment from NHAI to the InvIT are expected in a timely manner; leading to strong debt-repayment capacity. A liquidity cushion is also built into the proposed debt terms in the form of one quarter DSRA.
At the time of initial review the total debt for the seven SPV was likely to be Rs ~4,000 crore. The InvIT planned to raise debt of Rs ~2,700 crore at InvIT level (to be onlent to Project SPVs) and raise Rs ~1,400 crore as fresh issuance from the market. The proceeds from fresh issue and debt raised at InvIT level were to be utilized to prepay debt of Rs ~1,300 crore and refinance Rs. ~1,900 Crore debt of the SPVs (balance Rs. 800 Crore debt at InvIT was to be used to refinance the NCDs of Rs. ~800 Crore at VSEPL & GPEL in fiscal 2025). This would have resulted in Rs ~2,700 crore of debt outstanding at the InvIT level after listing of the InvIT.
However, as on August 1, 2023, total debt in the 7 HAM projects was Rs 3,718 crore (Rs 2,526 crore as rupee term loan and Rs 1,192 crore as NCD) and Lokesh Builders is expected to subscribe to units of InvIT of Rs. ~600 crore, resulting in the InvIT availing less debt. Therefore, the overall debt at the InvIT level is expected to be Rs. ~2,000 Crore.
As per the InvIT guidelines (also built into the draft term sheet), debt must not exceed 49% of the asset value (until six consecutive dividend distributions). With InvIT level debt expected to be at Rs. 2,000 crore, the portfolio is estimated to have comfortable leverage of 30-35%. CRISIL Ratings believes the DSCR for the rated debt instruments is strong and is expected to remain well above the covenants throughout the debt tenure, supported by fixed annuity payments and moderate leverage.
Experienced management team Bharat InvIT will benefit from the strong asset management ability of LBPL and GRIL (an associate of LBPL), which have longstanding presence in the infrastructure space with experience of over 25 years in design and construction of various road/highway projects across 16 states in India. GRIL has also completed more than 100 road construction projects since 2006. Apart from EPC (engineering, procurement and construction) projects, GRIL also has a portfolio of 32 road projects of which 10 are operational, 12 are under-construction and appointed dates are awaited for the remaining 10 projects. In addition to these, GRIL has 1 under-construction transmission project. Order book as on June 30, 2023, stood at Rs. 26,848 crore.
Fixed-price, long-term O&M agreement provides support Till date in all the 7 operational SPVs, O&M payments have come from NHAI without any major deductions. Furthermore, O&M expenses are inflation adjusted with 70% weight to WPI and 30% weight to CPI, thereby providing cushion and reducing overall variability in O&M payments. The HAM assets that are proposed to be acquired will execute a tri-partite fixed-price O&M and major maintenance contracts with LBPL (project manager) and GRIL (O&M Contractor) for the entire concession period with a clause of fixed price for the first seven years and provision for review of contract price after seven years from the date of entering into the respective O&M and major maintenance contract. Any change in this arrangement and higher than expected O&M costs in actual agreement will be key monitorables. The fixed-price contract provides the first level of cushion in terms of stability of cash flows. Any increase in O&M higher than that stipulated in the agreement will be borne by GRIL, resulting in lower volatility in cash flows of the InvIT.
However, actual O&M for operational assets has been between Rs 3.3 lakh per km (kilometre) to 14.2 lakh per km (lower than CRISIL Ratings estimates). Therefore, if the maintenance costs are lower than expected after 7 years, the costs can be revised downwards.
Weakness: Susceptibility to volatility in interest rates and possibility of debt-funded acquisitions Any reduction in the bank rate can impact the DSCR given that a large proportion of the cash inflow is from the interest on balance annuities. Furthermore, as operation cost depends on inflation and the proposed rupee term debt has a floating interest rate with monthly reset linked to benchmark, any significant increase in these components could impact cash flow. However, coverage indicators will be safeguarded to a certain degree due to a natural hedge as the movement in interest rate on borrowings that are linked to external benchmark, and the interest on annuities that are linked to bank rate shall move in the same direction.
Furthermore, the management also plans to add additional operational HAM assets in the InvIT, though its philosophy is to acquire only operational HAM or Annuity assets in InvIT will provide stable returns. But any acquisition of under-construction assets or of weak assets with large debt and low revenue potential, or leveraged acquisition of operational HAM assets impacting DSCR on sustained basis will remain a rating sensitivity factor. |
Liquidity: Superior Expected timely annuity receipts of Rs 6,500 crore over the next 14 years will be adequate to meet operational expenses and debt obligation. Average DSCR is expected to be comfortable at more than 2 times and cushion in annuity receipts is provided by a strong counterparty with no substantial delay in annuities for any of the operational assets. Furthermore, a DSRA equivalent to three months of interest and principal obligation will be maintained. Liquidity will also be supported by dividend flow from the SPVs to the InvIT over the course of 14 years. |
Outlook: Stable Bharat InvIT is likely to continue to benefit from the steady revenue from the 7 operational HAM assets, backed by strong counterparty and predictable expense and mitigants to O&M and major maintenance-related risks. |
Rating Sensitivity Factors Downward factors
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Additional disclosures for the provisional rating The provisional rating is contingent upon occurrence of the following:
The 'provisional' rating shall be converted into a final rating after receipt of transaction documents duly executed and confirmations on completion of pending steps within 90 days from the date of completion of offer through which the InvIT completes its fundraising and issues units.
The 'final' rating assigned post conversion shall be consistent with the available documents and completed steps. In case of non-completion of steps or non-receipt of the duly executed transaction documents within the specified timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.
The broad details of the assets that are proposed to be held by are as follows:
GR PHAGWARA EXPRESSWAY LIMITED ('GPEL') GPEL is an SPV incorporated on September 21, 2016, for the four laning of Phagwara to Rupnagar section of NH-344A from km 0.00 (design chainage) to km 80.820 in Punjab under HAM. The project received PCOD on February 25, 2020, and COD on May 26, 2021, and has a track record of receiving 6 annuities till July 31,2023.
PORBANDAR DWARKA EXPRESSWAY PRIVATE LIMITED ('PDEPL') PDEPL was incorporated on June 10, 2017 and promoted by GRIL for four-laning of the Porbandar-Dwarka section of National Highway 8E in Gujarat from 356.786 km to 473.000 km (a stretch of 116.214 km) on a design, build, finance, operate, and transfer basis under HAM. The project received PCOD on April 18, 2020, and COD on October 13, 2021, and has a track record of receiving 6 annuities till July 31,2023.
VARANASI SANGAM EXPRESSWAY PRIVATE LIMITED ('VSEPL') VSEPL was incorporated on April 18, 2017, and promoted by GRIL for six-laning of Handia to Varanasi section of NH-2 from km 713.146 to km 785.544 in Uttar Pradesh under NHDP Phase V. The project received PCOD on November 2, 2020, and has a track record of receiving 5 annuities till July 31,2023.
GR AKKALKOT SOLAPUR HIGHWAY PRIVATE LIMITED ('GASHPL') GASHPL was incorporated on April 27, 2018 and promoted by GRIL for four-laning of Akkalkot - Solapur section of NH-150E in Maharashtra with paved shoulders from design chainage km 99.400 to km 138.352/existing chainage from km 102.819 to km 141.800 (design length 38.952 km), including Akkalkot bypass (design length 7.350 km). The project received PCOD on March 31, 2021 and has a track record of receiving 4 annuities till July 31,2023.
GR SANGLI SOLAPUR HIGHWAY PRIVATE LIMITED ('GSSHPL') GSSHPL is a special purpose vehicle incorporated on 27th April, 2018 and promoted by GRIL for Four-laning of Sangli - Solapur (Package- III: Watambare to Mangalwedha) Section of NH-166 from existing Ch. Km 272.394 to Ch. km 314.969 (Design Ch. km. 276.000 to Ch. km. 321.600). The project received PCOD on 28th June, 2021 and has track record of receiving 4 annuities till July 31,2023.
GR GUNDUGOLANU DEVARAPALLI HIGHWAY PRIVATE LIMITED ('GDHPL') GDHPL was incorporated on March 28, 2018, and is promoted by GRIL for four-laning of the Gundugolanu - Devarapalli - Kovvuru section of NH-16 from km 15.320 (existing km 15.700) to km 85.204 (existing km 81.400) in Andhra Pradesh under Bharatmala Pariyojana. The project received PCOD on July 10, 2021 and COD on September 30, 2022. It has a track record of receiving 4 annuities till July 31,2023.
GR DWARKA DEVARIYA HIGHWAY PRIVATE LIMITED ('GDDHPL') GDDHPL was incorporated on March 26, 2019, and is promoted by GRIL for four-laning of Dwarka (Kuranga) - Khambhaliya - Devariya section of NH 151A in Gujarat under Bharatmala Pariyojana. The project received PCOD on August 2, 2022. PCOD for additional 12.8 km (aggregating to 67.01 Km) received on February 08, 2023. It has a track record of receiving 1 annuity till July 31, 2023. |
Rating that would have been assigned in the absence of the pending documentation In the absence of pending steps/documentation considered while assigning the provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating |
Risks associated with the provisional rating: The 'Provisional' prefix indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on a case to case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio. |
About the InvIT Bharat InvIT is an infrastructure investment trust of roads sector assets sponsored by LBPL, with GR Highways Investment Manager Pvt Ltd as its investment manager, LBPL as the project manager and IDBI Trusteeship Services Ltd as the trustee.
The InvIT received registration certificate from the Securities and Exchange Board of India on August 3, 2022. Subject to the receipt of requisite approvals, the InvIT intends to acquire 100% of the equity shares in each of the project SPVs (except GDDHPL, in which it initially plans to acquire 49%) from GRIL (an associate of the sponsor).The InvIT will issue units to GRIL on the acquisition date pursuant to the share purchase agreements.
At the time of initial review the total debt for the seven SPV was likely to be Rs ~4,000 crore. The InvIT planned to raise debt of Rs ~2,700 crore at InvIT level (to be onlent to Project SPVs) and raise Rs ~1,400 crore as fresh issuance from the market. The proceeds from fresh issue and debt raised at InvIT level were to be utilized to prepay debt of Rs ~1,300 crore and refinance ~ Rs. 1,900 Crore debt of the SPVs (balance Rs. 800 Crore debt at InvIT was to be used to refinance the NCDs of Rs. ~800 Crore at VSEPL & GPEL in fiscal 25). This would have resulted in Rs ~2,700 crore of debt outstanding at the InvIT level after listing of the InvIT.
However, as on August 1, 2023, total debt in the 7 HAM projects was Rs 3,718 crore (Rs 2,526 crore as rupee term loan and Rs 1,192 crore as NCD) and Lokesh Builders is expected to subscribe to the units of the InviT of Rs. ~600 crore, which will result in lower debt to be availed by the InvIT. Therefore, the overall debt at the InvIT level is expected to be ~ Rs. 2,000 Crore. |
Key Financial Indicators
Past financial data is not available as the InvIT has recently been registered and assets are yet to be acquired. |
Any other information CRISIL Ratings has received an undertaking from Bharat InvIT stating that key details (assets, location, capital structure, aggregate leverage and other key assumptions) of the initial portfolio of the 7 assets are in consonance with the details that will be submitted to SEBI.
Key terms of proposed debt
*Additional Rs. ~1000 crore of proposed debt is not expected to be availed. |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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Criteria Details
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