First Business Receivables Trust (Originator: Reliance Industries Limited) Rating Reaffirmed
Rating Action
(#)There are 24 series of pass-through certificates (PTCs) with tenures starting from 1 quarter to 24 quarters
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA (SO)/Stable' rating on the existing PTCs of Rs. 1,479.56 crore of First Business Receivables Trust (FBRT). The rating on PTCs of Rs 289.47 crore is withdrawn as these have been completely redeemed. The withdrawal is in line with the CRISIL Rating’s policy on withdrawal of ratings.
As per the transaction structure, Reliance Industries Ltd (RIL; 'CRISIL AAA/Stable/CRISIL A1+') has assigned a part of the receivables from a loan of Rs. 15,600 crore ('loan') extended to Reliance Corporate IT Park Ltd (RCITPL), to FBRT.
The underlying loan has a charge over receivables from 'service users' due to the borrower, RCITPL. The loan receivables are assigned in exchange of a purchase consideration paid by the trust. At its end, the trust has issued PTCs to investors for the same amount as the purchase consideration. Thus, the PTCs are serviced by payments from 'service users' which include RIL and its group companies - Reliance Jio Infocomm Ltd (RJIL; 'CRISIL AAA/Stable/CRISIL A1+') and Reliance Retail Ltd (RRL; 'CRISIL AAA/Stable/CRISIL A1+'). Axis Trustee Services Ltd is monitoring the overall transaction on behalf of the investors.
RCITPL provides infrastructure, information technology (IT) and IT enabled services across India, including from its office complex in Ghansoli, Navi Mumbai to RIL, RJIL and RRL, for which it has entered into 'service agreements' (SA) entered for a period of 13 years. The 'service fee' under the SA is credited to a trust-controlled account ('collection & payout account'), five business days prior to the payout date to PTC investors. RCITPL acts as a 'collection & servicing agent' to ensure the fees are received in time. Further, the trust has full recourse on RCITPL, which is RIL's wholly owned step-down subsidiary, to ensure timely payment to investors.
Moreover, the SA is non-terminable during the term of the PTCs, and no set-off is available to service users regarding the service fee. Payments towards actual operating cost incurred by the service provider (RCITPL) are payable by service users and are separate from the service fee. Further, any other factor related to the services rendered by RCITPL, including deficiency in services or disputes and any unforeseen future liabilities does not have any impact on the 'service fee' payable.
The rating continuous to factor in the soundness of the transaction's legal structure, the strong credit profile of the borrower, RCITPL, to which the trust has full recourse for timely payments, and the strong credit profile of the borrower's counter-parties, viz. RIL, RJIL and RRL.
Analytical Approach CRISIL Ratings has considered credit risk profile of borrower (RCITPL) and service users (RIL, RJIL and RRL) and legal risk of transaction and has also applied the criteria for notching up ratings based on parent support to the borrower.
CRISIL Rating has also analysed collection performance since the issuance of the PTCs. |
Key Rating Drivers & Detailed Description Strengths
The borrower has a strong credit profile, given its importance to the RIL group. RCITPL provides infrastructure, IT and IT enabled services to RIL and its group entities across India, including from the group’s principal corporate office space – its 10.4 mn sq.ft. complex at Ghansoli, Navi Mumbai.
The complex also has an area available for further development of about 11.6 mn sq.ft. This is strategically important to the group as it has the capacity to house more than 50,000 employees of RIL and its group entities and houses the network operating centre for the RIL’s digital services operations under RJIL. RIL has also lent its name to RCITPL and has provided an undertaking to the trustee that it shall at least maintain a 51% shareholding in RCITPL over the tenure of the PTCs. Furthermore, RIL has full management control of RCITPL and the large market value of its real estate ensures strong economic incentive for the parent to provide need-based support.
The PTCs are being serviced through service fees paid by RIL (65% of total receivables), RJIL (24%) and RRL (11%), all of which enjoy strong credit profiles. RIL has strong competitiveness in the global oil refining business, leadership in the domestic petrochemicals industry, and exceptional financial flexibility. RRL is India's largest retail entity, by revenue, scale and profits; while RJIL is India's largest telecom service provider, by revenue market share. Further, the non-terminable nature of the business service agreements mitigates the counterparty risk.
The service fees must be credited by users to the ‘collections & payout’ account five business days prior to the due date (T date). This provides sufficient time for the collection and payout agent to ensure timely payment to PTC holders. Also, under a waterfall mechanism, payment of interest and principal payments to PTC holders would be prioritized, with only any residual amount in the collection and payout account paid to the borrower.
The assigned loan receivables is aligned with payouts to PTC holders and has a fixed interest and repayment schedule for their entire door-to-door tenure, thereby mitigating the risk of any mismatch in cash flows.
Weakness RCITPL was earlier providing several other services to RIL group and its related entities through its ‘platform, projects and services’ undertaking, such as project execution and Operations & Maintenance (O&M) for telecom towers/optical fiber infrastructure. These businesses were demerged into another group entity in September 2019. RCITPL currently only provides infrastructure, IT and IT enabled services to RIL group and related entities across India and is holding the related real estate assets of the group. After the demerger, the continuing business of RCITPL comparatively has a smaller scale than before, both in terms of revenue and profitability. Nevertheless, the entity continues to be strategic to the RIL group. |
Liquidity: Superior Liquidity is supported by the financial flexibility of the RIL group.
Outlook: Stable CRISIL Ratings believes that FBRT's will continue to be supported over the medium term by the strong credit profile of service users and the borrower, along with the soundness of the transaction's legal structure. |
Rating Sensitivity Factors Downward Factors
About the Originator (RIL) RIL is one of India's largest private sector companies, with diverse interests, including petrochemicals, oil refining, and upstream oil and gas exploration and production. RIL has strong competitiveness in the global oil refining and petrochemicals business, arising from its integrated business model with superior Complexity Index of 21.1 for its Jamnagar site, which makes it amongst the most complex sites in the world. RIL has also established its presence in the consumer facing business space by providing retail and digital services, which currently is RIL's principal growth drivers. RRL is India's largest retail entity by revenue, while RJIL has also become India's largest telecom service provider by revenue market share. The group is also in the process of establishing itself in the green energy space |
Key Financial Indicators (RIL)
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure – Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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