| East West Pipeline Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the debt instruments and long term bank facilities of East West Pipeline Limited (EWPL) (Formerly Reliance Gas Transportation Infrastructure Ltd) and reassigned its 'CRISIL A1+' rating to the short term bank facility. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of SPTL, RUPPL, EWPL, and RIHPL, collectively referred to as the RIHPL group, because of their common ownership, significant business linkages with RIL, and fungible cash flow. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strong operational linkages with RIL SPTL, RUPPL and EWPL are owned by the promoter group of RIL. The operations of these entities are critical for RIL as they are closely integrated with those of RIL's facilities in Jamnagar, Dahej and Hazira in Gujarat, and with RIL's Krishna Godavari (KG) D6 gas fields. SPTL provides port and marine infrastructure services at Sikka, Jamnagar Gujarat for handling crude and evacuation of petroleum and petrochemical products of refinery and manufacturing facilities of RIL at Jamnagar through five Single Point Mooring Equipment (SPMs), and five Jetty Berths, crude and petroleum products storage tanks and related undersea and on-shore pipelines. SPTL is also engaged in operating and hiring construction equipment and machineries, and is also a co-developer of Jamnagar Special Economic Zone (SEZ). STPL handles a major part of RIL's refining/petrochemicals volumes. In fiscal 2017, RUPPL set-up additional power plants with capacity of 1029 MW of power and 5875 tonnes per hour (TPH) of steam at Jamnagar, Hazira, and Dahej in Gujarat to meet the power and steam requirement of RIL ' post which its generation capacity has increased to over 2300 MW of power and over 10000 TPH of steam. The facilities are catering exclusively to RIL's existing facilities as well as its expansion in the petrochemicals and refining business, which is nearing completion. EWPL has built and operates a 1386-kilometre cross-country pipeline to evacuate natural gas produced by RIL's KG basin - connecting gas sources on India's eastern coast with markets on the western coast. EWPL also caters to transportation needs for other gas sources including RLNG terminals along the stretch of the pipeline. EWPL is connected to pipelines of other operators like GAIL and GSPL for onward delivery of gas to other parts of India. * Robust financial flexibility and stable cash flows, driven by operational efficiencies The contractual nature of RUPPL's and SPTL's cash flows and the regulated nature of EWPL's cash-flows, along with strong operational efficiencies lend stability to the RIHPL group's overall cash flows; the group's annual net cash accruals are expected to be about Rs 4000 to Rs. 5000 crore over the medium term. The group has a robust financial flexibility, which emanates from holding at-least 75.4 crore equity shares in RIL (37.7 crore before 1:1 stock-split in July 2017) by RIHPL either directly or indirectly - the market value of these shares as on April 9, 2018, was over Rs 69,000 crore. Weaknesses * Large quantum of debt RIHPL, at a consolidated level, had external debt of about Rs 22,000 crore as on March 31, 2018. Nevertheless, owing to strong accruals over the previous two fiscals, the group's cash & cash equivalents have increased from about Rs. 6,500 crore as on 31st March, 2016 to about Rs. 11,700 crore as on 30th September, 2017. Going forward, CRISIL expects capex to remain low, which is likely to be funded by internal accruals. Thus the debt levels are not expected to significantly increase from current levels. Moreover, the group's debt has a long maturity profile with repayments up to fiscal 2027. * Low gas volumes at EWPL due to drop in production at KGD6 block has constrained its cash flows EWPL's cash flow is sensitive to the volume of gas available for transportation. Low volume reduces capacity utilisation and revenues, thus impacting cash accruals. There has been a significant drop in RIL's gas production from its KG-D6 block over the last few years, which has constrained its cash flows. Average production was about 5 mmscmd in Q3'FY 2018, down from about 8 mmscmd in fiscal 2017 and about 12 mmscmd from fiscal 2014 to fiscal 2016, which in turn was significantly lower than 26 mmscmd in fiscal 2013. Nevertheless, gas volumes are expected to increase after RIL and BP's joint deepwater gas-field project at the KG-D6 basin commences production (expected in 2020). In the five years since April 2012, RIHPL group has extended support to EWPL in the form of subordinated debt and preference shares (About Rs. 4,826 crore and Rs. 8,000 crore respectively as on 31st March, 2018). CRISIL believes timely support from the RIHPL group will continue. |
| Outlook: Stable |
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CRISIL believes the RIHPL group's credit risk profile will remain healthy over the medium term supported by the strong operational linkages of SPTL, EWPL, and RUPPL with RIL, and healthy financial flexibility derived from holding RIL shares. |
| About the Group |
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RIL is one of India's largest private sector companies, with diverse interests, including petrochemicals, oil refining, and upstream oil and gas E&P. Oil refining is RIL's largest activity, accounting for around 64% of the revenue in fiscal 2017, followed by petrochemicals at around 23% (both before interparty transactions). In the recent past, RIL has diversified into newer businesses which includes organised retail and telecommunications. For 9M' FY 2018, RIL, on a consolidated basis, reported a profit after tax (PAT) of Rs 26,640 crore on revenue of Rs 301,611 crore, against a PAT of Rs 21,855 crore on revenue of Rs 237,291 crore for 9M' FY 2017. |
| Key Financial Indicators (RIHPL Group - CRISIL Adjusted) | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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