| DME Development Limited | ||
| 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 ‘CRISIL AAA/Stable’ rating on the long-term borrowing programme and bank loan facility of DME Development Ltd (DME).
The rating continues to reflect strategic and economic importance of DME in augmenting India’s infrastructure requirement for enhancing economic growth in the country. The rating also factors in technical, managerial, and financial support expected from the parent, National Highways Authority of India (NHAI, ‘rated 'CRISIL AAA/Stable’), for implementing and funding the project. These rating strengths are partially offset by the exposure to project implementation risk, including time and cost overruns. |
Analytical Approach CRISIL Ratings has notched up DME’s standalone rating, based on the expectation of strong and timely support from the parent, NHAI, both on an ongoing basis and in the event of distress. This is mainly as DME functions as an extended arm of NHAI, enhancing its strategic role and importance in augmenting India's infrastructure requirement. |
Key Rating Drivers & Detailed Description Strengths: Strategic and economic importance of the project in augmenting India’s infrastructure requirement Delhi Mumbai Expressway is a project floated by NHAI to construct an 8 lane 1386 kilometer (km) high-speed corridor connecting north India with west and south India. DME Development Limited (DMEDL), a wholly owned SPV of NHAI, was incorporated on 29th August 2020. NHAI and DMEDL entered in to a Concession Agreement to undertake the financing, development, operation, maintenance and management of 1277 km of the project. DMEDL subsequently entered into an Implementation Agreement with NHAI to transfer the rights to NHAI for procurement, construction, operation, maintenance and monitoring 1277 km of the project. The project will connect the country’s prominent economic and social hubs such as Mumbai, Delhi, Vadodara, Kota and Jaipur. The stretch is being constructed through engineering, procurement and construction (EPC) and hybrid annuity model (HAM), wherein the Delhi to Vadodara section is being constructed through EPC mode and the Vadodara to Mumbai section through HAM. It is one of the largest infrastructure projects in India with 8-lane configuration and provision to expand to 12 lanes. The project will reduce travel time between Delhi and Mumbai by around 50%. Successful implementation of the project is expected to reduce distance and travel time, which will enable cost saving. The project is critical and of high strategic importance to NHAI.
Technical, managerial, and financial support from NHAI Given the criticality of DME, NHAI has provided complete support for the implementation of the project. NHAI and DME have entered into a concession agreement (CA) wherein DME has rights related to financing, development, operation, maintenance and management of the project in accordance with the terms and conditions as set forth in the CA. DME has subsequently entered into an implementation agreement (IA) with NHAI wherein rights related to development, operation, maintenance and management of the project have been transferred to NHAI. DME will only be responsible for raising funds for the project. The project is being monitored at the highest level of Government of India, and NHAI has nominated its senior and experienced personnel to DME’s board including representation of one senior official from Ministry of Road Transport and Highways (MoRTH). Governance planning through the CA and IA between NHAI and DME will ensure that no ambiguity arises regarding the scope and implementation of the project. A project of such magnitude is likely to pose new implementation challenges, which is partly mitigated given expertise of NHAI in executing road projects.
The project is being funded through debt and equity mix of 9:1. Out of the estimated project cost of Rs 53,849 crore, NHAI will infuse Rs 5,385 crore in the project as equity and balance Rs 48,464 crore will be funded by debt. As per the management, the project is expected to be completed by 2024 and debt will be raised in a phased manner. As of December 31, 2023, debt of Rs 36,520 crore has been availed by DME and balance will be availed as and when required from total debt of Rs. 49000 crore. Once the project becomes operational, DME will receive fixed annuities from NHAI which will cover its debt obligation and maintenance cost. Annuities to DME shall be due and payable in accordance with the terms agreed with the lenders under the financing agreements. As per the termination clause in the CA, on termination of project, NHAI will make the termination payment to the extent of the debt due.
The rating centrally factors in strong explicit NHAI support for the entire debt being raised under DME. NHAI has provided LOC for achieving financial closure to existing lenders. As per the terms of the LOC, NHAI will ensure that DME meet its payment obligations in respect of interest and repayment obligation. NHAI will fund loan accounts of DME at least one day prior to the due date. NHAI will continue to extend its support by making periodic payments to DME as annuity for meeting its debt servicing obligation. The letter further states that debt service obligations of DME shall remain an obligation of NHAI, notwithstanding the termination of the CA. In case of any shortfall in the funding plan for any corresponding year, the same shall be arranged by NHAI. Besides, NHAI has also undertaken to maintain stake of at least 51% until debt is outstanding- if there is any dilution of stake it will be with prior approval from the lenders. NHAI has brought in equity of Rs 4,534 crore out of total requirement of Rs. 5385 crore till December 31, 2023 and has also been funding the interest obligations of DME.
Weakness: Exposure to project implementation risk, including time and cost overruns The project is one of the largest undertaken by NHAI. Although NHAI has a track record in implementing large projects, it remains exposed to implementation challenges due to the large scope of project.
While the entire project length has been awarded till November 30, 2023 and construction is underway, the authority is still in the process of procuring requisite right of way. Possession of about 97% of the required length has been completed and for about 93% of the land, compensation has been decided as on Nov 30, 2023. As per the management, the project is expected to be completed by 2024 and physical progress of the project will remain a key monitorable. Any escalation in project cost due to delay in completion will be funded by NHAI. |
Liquidity: Superior DME’s liquidity is underpinned by support from NHAI. Out of the estimated project cost of Rs 53,849 crore (excluding annuity for HAM projects), NHAI will infuse Rs 5,385 crore in the project as equity, of which NHAI has already infused Rs 4534 crore till December 2023. Annuity for HAM will be paid directly by NHAI. The project is expected to be completed by 2024. Debt has a moratorium of one year post completion. Once the project becomes operational, DME will receive annuities from NHAI which will cover its debt obligation and maintenance cost.
As per the terms of the LOC, NHAI will ensure that DME meet its payment obligations in respect of interest and repayment obligation. NHAI will fund loan accounts of DME at least one day prior to the due date. Further, LOC also covers that in case of any shortfall in the funding plan for any year, the same shall be arranged by NHAI. Also, NHAI will undertake to continue servicing entire debt obligations outstanding, even in the event of termination of the project, if any. |
Outlook: Stable DME will be exposed to project implementation risks which are expected to be overcome through business and financial support from NHAI, given the criticality of the project to India’s infrastructure development. |
Rating Sensitivity Factors Downward factors
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Unsupported ratings: CRISIL AAA Unsupported rating disclosure for ratings without ‘CE’ suffix, where the instruments are backed by specified support considerations, is in compliance with SEBI’s Operational Circular dated January 06, 2023. |
About the Company DME, incorporated on August 29, 2020, is a SPV of NHAI. It is formed to undertake the development of 1277 km of Delhi-Mumbai expressway. The estimated project cost of Rs 53,849 crore (excluding land cost and annuity for HAM projects of Rs 39,582 crore) will be funded in debt-to-equity ratio of 9:1. Land cost is borne by NHAI and annuity for HAM projects will be paid directly by NHAI. The concession period of the project is 20 years including construction period of 3 years. |
Key Financial Indicators
Note: The project is under construction and hence, financials are not meaningful |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Long-term borrowing programme ^Long term bank loan is part of long-term borrowing programme |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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