Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facilities of GR Dwarka Devariya Highway Private Limited (GRDDHPL; a hybrid annuity project of G R Infraprojects Ltd [GRIL; rated ‘CRISIL AA/Stable/CRISIL A1+’]), to ‘CRISIL AAA/Stable’ from ‘CRISIL AA-/Positive’.

 

CRISIL Ratings has also withdrawn its rating on the bank facilities amounting to Rs 23 crore as these limits have been surrendered. The withdrawal is in line with the withdrawal policy of CRISIL Ratings.

 

The rating upgrade follows the project receiving its first annuity of Rs 48.38 crore along with interest payments as per the provisions of the concession agreement (CA). The annuity is received to the extent of 93.43% of project length completed and Rs 2.34 crore have been deducted for balance works on 4.81 kilometre [km]. Rs 2.10 crore operations and maintenance [O&M] payment is pending, which the National Highway Authority of India [NHAI] has not paid due to some clerical issues and is expected to be received in a  months time.

 

Furthermore, the sponsor has created a debt service reserve account (DSRA) of Rs 29.15 crore in the form of fixed deposits, covering six months of debt servicing obligations, as stipulated in the financing agreements.

 

Following receipt of the first annuity in March 2023, the company also prepaid the first instalment of the term loan and created a full DSRA, thus delinking dependence of the project on the sponsor, going forward. GDDHPL has total outstanding debt of Rs 424.12 crore as on April 13, 2023. As a result, the ratio of debt to annuities receivable is healthy at 0.67 time and the debt service coverage ratio (DSCR) is expected to be above 1 time throughout the tenure of the debt. The debt obligation is well spaced out and there is need for moderate maintenance spend as major portions of the project stretch have a rigid pavement. Furthermore, there is a buffer of over one month between the scheduled annuity payment date and the debt obligation date, which provides some cushion in case of delay in receipt of annuity.CRISIL Ratings expects GDDHPL to maintain DSRA equivalent to six months of debt obligation throughout the loan tenure.

 

GDDHPL has received provisional commercial operations date (PCOD) for completed length of 67.01 km (54.210 km + 12.80 km) out of 71.82 km. The remaining 4.81 km could not be completed due to non-availability of right of way (ROW) and will be completed as and when ROW is made available or else it will be descoped.

 

The rating reflects benefits inherent in the hybrid annuity model (HAM), minimal funding risk, healthy debt protection metrics, operational experience and financial strength of the sponsor and engineering, procurement and construction (EPC) contractor (GRIL), and need-based support from the sponsor during the construction and operational phases. These strengths are partially offset by susceptibility to fluctuations in operational cost and interest rate.

Analytical Approach

For arriving at the rating, CRISIL Ratings has taken a standalone view of GDDHPL.

Key Rating Drivers & Detailed Description

Strengths:

• Inherent benefits of HAM

The benefits of HAM include delinking of unavailable land, allowing PCOD to be issued on completion of construction on the land made available up to 180 days from the appointed date, allowing full annuity to be paid as if the project has been completed. However, in this project, the remaining work largely involves construction on a 4.88 km stretch, which will be completed as and when ROW is made available by NHAI. PCOD was provided on partial completion because of delay by NHAI in providing ROW.

 

As of March 2023, the company had achieved physical progress of 93.43%. Annuity is expected to commence six months from the PCOD, and annuity will be received for the completed stretch in case pending works are not descoped. However, descoping by NHAI will be a key monitorable.

 

The project received PCOD on August 02, 2022 (54.12 km + PCOD on 12.80 km was received on February 08, 2023). As per the provisions of the HAM CA, full annuities and O&M payments are to be received starting six months from the first PCOD itself. Accordingly, the project has received its first proportionate annuity on August 2, 2022 (along with interest) without any major deductions in line with the provision in the CA.

 

• Healthy debt protection metrics

The project will receive 60% of the completion cost  in the form of 30 semi-annual payments from NHAI for the next 15 years, out of which the first annuity has already been received on March 02, 2023. The project will also receive interest payments on the balance annuities at a rate equal to the prevailing bank rate plus 3%. Of the total sanctioned debt of Rs 458 crore, the company has drawn down Rs 425 crore till date and Rs 23 crore is surrendered. The ratio of debt to annuities receivable is healthy at 0.67 time (with debt of Rs 435 crore) and the DSCR is expected to be above 1 time throughout the tenure of the debt, supported by moderate debt obligation and limited maintenance expenses as the project has a rigid pavement. Furthermore, there is a gap of more than one month between the scheduled annuity payment date and the debt obligation date, which provides a cushion in case of delay in annuity.Currently, DSRA of six months debt obligation has been maintained in line with the terms of the financing agreements.

 

• Expected operational and financial support from the sponsor

The company will get strong operational support from GR Infraprojects Limited (GRIL), the single largest shareholder. GRIL is the O&M contractor and will be responsible for routine and periodic maintenance of the project stretch. GRIL has a track record of more than two decades in the EPC segment and has worked with established developers and undertaken HAM projects. The company has a portfolio of 32 HAM projects including BOT and annuity projects, of which 5 have achieved commercial operation date (COD). All these projects have become operational at on or before the schedule date. Other HAM projects are also running well ahead of the completion timeline. Furthermore, the project enjoys financial flexibility in the form of an undertaking provided by GRIL for financial support in case of shortfall in DSRA and cash flow mismatches during the operational phase.

 

In case ROW is received for the balance 4.81 km,the company would be required to spend Rs 50-60 crore. This will be funded out of equity infusion/ loan from the promoter. However, the concessionaire will have to complete construction within the original stipulated cost as all five construction grants have been received from NHAI. This risk is mitigated by the fixed-time, fixed-price contract with GRIL.

 

Weakness:

• Susceptibility to fluctuations in operational cost and interest rate

GRDDHPL is exposed to risks related to maintenance of the project stretch. If the prescribed standards are not met, annuity payment may be reduced. Significant delay and deduction in annuities could impact the project's debt servicing ability. This risk is, however, mitigated by the strong operational track record of the O&M contractor. Furthermore, as operations cost depends on inflation, any significant increase therein may impact cash flow.

 

Also, along with fixed annuities, the project will receive interest payments on the balance annuities that are linked to the prevailing bank rate. The reduction in bank rate impacts project inflow given that a large proportion of the cash inflow is from the interest on balance annuities. However, this is partially offset by the fact that the interest rate on debt is floating and is also expected to follow the trend in bank rates, thus keeping DSCR in check. Although the cushion in cash flow will help absorb the impact of such fluctuations partially, these components will be key rating sensitivity factors.

Liquidity: Strong

Liquidity will be supported by receipt of semi-annual annuities (along with interest) and O&M pay-out from NHAI. The DSCR is expected to be comfortable at over 1 time throughout the tenor of the debt. Furthermore, DSRA covering debt obligation for six months (Rs 29.15 crore) has been created as per the terms of the financing agreements. Additionally, there is a gap of more than one month between the scheduled annuity payment date and the debt obligation date, which provides a cushion in case of delay in annuity. GRIL has also provided an undertaking for financial support in case of shortfall in DSRA and cash flow mismatches during the operational phase.

Outlook: Stable

CRISIL Ratings believes GDDHPL should continue to benefit from the receipt of PCOD and completion certificate from Independent Engineer ( IE), leading to stable semi-annual payments from NHAI.

Rating Sensitivity factors

Downward factors

• Significant delay or deduction in annuity resulting in deterioration in DSCR below 1x
• Any additional debt contracted
• Weakening in the credit risk profile of the sponsor, Lack of timely financial support or
  weakening in the credit risk profile of the sponsor, GRIL

About the Company

GRDDHPL is a special-purpose vehicle incorporated on March 26, 2019, for the four-laning of Dwarka Devariya section of NH-151A from km 171/800 to km 125/000 of design length 71.89 km in Gujarat under Bharatmala Pariyojana through HAM. GRIL is the 100% shareholder of the company.

 

The concession agreement for the project was executed between the company and NHAI on May 22, 2019, for a concession period, including construction period of 912 days from the appointed date and fixed operations period of 15 years from COD. Subsequently, extension of timeline (of 180 days) on account of the Covid-19 pandemic was approved by NHAI. The company received appointed date on February 8, 2020. The company has received PCOD with effect from August 2, 2022.This asset is expected to be transferred to InvIT.

Key Financial Indicators*

As on / for the period ended March 31	Unit	2022	2021
Revenue^	Rs crore	468	231
Profit after tax (PAT)	Rs crore	24	9
PAT margin	%	5.13	3.9
Adjusted debt / adjusted networth	Times	7.41	3.61
Interest coverage	Times	3.59	2.81

*CRISIL Ratings adjusted financials

^Revenue includes the construction cost incurred in the project as per IND-AS accounting requirements

@Interest cover is less than one as the project is under construction

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity level	Rating assigned with outlook
NA	Rupee Term Loan	NA	NA	June36	435	NA	CRISIL AAA/Stable
NA	Rupee Term Loan	NA	NA	Jun-36	23	NA	Withdrawn