| GR Gundugolanu Devarapalli Highway Private Limited | ||||
| Rating upgraded to 'CRISIL AA-/Positive' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facility of GR Gundugolanu Devarapalli Highway Private Limited (GRGDHPL) to ‘CRISIL AA-/Positive’ from ‘CRISIL A-/Stable’.
The rating action follows the achievement of the provisional commercial operations date (PCOD), thereby significantly mitigating project implementation risk. The PCOD was achieved on July 10, 2021, vis-à-vis revised completion date of June 30, 2021 (which includes extension on account of the pandemic). PCOD has been achieved within 90 days buffer period provided in the concession agreement for achievement of each project milestone. The PCOD has been granted on 64 kilometres (km) out of the total length of 69.8 km. As of July 2021, physical progress of around 93% has been achieved; the balance work largely involves construction of 1 rail-over-bridge (ROB) and 3 major bridges. Full right of way is available and all major approvals for the pending structures are in place, which will facilitate completion of the remaining work. Hence, full annuities and operations and maintenance (O&M) payments (assuming 100% work is completed) can be expected 6 months from PCOD, and the concessionaire will have to complete the balance work as per timelines stipulated in the supplementary agreement with the National Highways Authority of India (NHAI; rated ‘CRISIL AAA/Stable’), which is yet to be executed.
The ratio of debt to annuities receivable is healthy at 0.65 time (assuming receipt of 100% annuity) and the debt service coverage ratio (DSCR) is expected at above 1 time throughout the tenure of the debt. Debt service reserve account (DSRA) covering three months of interest payments in line with facility agreement will be created by the sponsor, G R Infraprojects Limited (GRIL; rated ‘CRISIL AA/Stable/CRISIL A1+’), by August 2021. The DSRA covering six months of debt obligation will need to be created by the time the second annuity is received and will be maintained throughout the tenure of the debt. Any shortfall in the creation of DSRA will be supported by the sponsor.
The rating reflects the 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 GRIL during the construction and operational phases. These strengths are partially offset by susceptibility to changes in operational cost and interest rate. |
Analytical Approach CRISIL Ratings has notched up the standalone rating based on the expectation of strong support from the parent, GRIL, both on an ongoing basis and in case of distress. |
Key Rating Drivers & Detailed Description Strengths * Inherent benefits of HAM The benefits of HAM include delinking of unavailable land, which lets PCOD to be issued on completion of construction on the land made available up to 182 days from the appointed date, thereby allowing full annuities to be paid as if all project works have been completed. However, in this project, while the entire land was handed over, PCOD was provided on partial completion as there was delay in receipt of approvals for 1 ROB and 3 other major bridges; these have been excluded from works required to be completed for grant of PCOD. The concessionaire will have to complete the balance work as per timelines stipulated in the supplementary agreement with NHAI (yet to be executed).
As of July 2021, physical progress of around 93% has been achieved. However, entire land has been handed over and all major approvals for the pending structures are in place. Annuity is expected to commence starting six months from the PCOD itself and full annuities are expected since no portion of pending works will be de-scoped.
Total bid project cost is Rs 1,827 crore, but the company had achieved financial closure for project cost of Rs 1,716 crore, funded by an NHAI grant of Rs 730.8 crore, debt of Rs 788 crore, and the balance through equity. Funding risk has been mitigated after achievement of financial closure and substantial completion without cost overruns. Physical progress of the project has largely been funded out of NHAI grant payouts, and funds from the sponsor (equity as well as outstanding creditors to GRIL since it is also the EPC contractor). Reliance on debt has been limited (Rs 500 crore disbursed till July 2021). Over 90% of the NHAI grant (four full milestones and two interim fifth milestones) and 78% of promoter equity has been received. Cost of pending works is estimated at Rs 128 crore and the project is expected to be completed within initial cost estimates. Balance debt available for drawdown as well as pending sponsor equity and grant from NHAI will be able to meet the funding requirements of the pending works. Furthermore, GRIL has given an undertaking to provide financial support in case of cost overrun and cash flow mismatch during the construction and operational phases.
* Healthy debt protection metrics Ratio of debt to annuities receivable is expected to be strong at 0.65 time and DSCR will remain above 1 time throughout the debt tenure. The project will receive 60% of the bid project cost (Rs 1,827 crore adjusted for price indexation) from NHAI in the form of 30 semi-annual payments starting January 2022. Along with fixed annuities, the project will also receive interest payments on the balance annuities at a rate equal to the prevailing bank rate, plus 3%.
Additionally, as per the financing agreement, DSRA for meeting 3 months of interest payment will be created by the sponsor by August 2021 and DSRA covering 6 months interest and principal payments will be created in a phased manner until receipt of the first two annuities and will be maintained throughout the tenure of the debt. Furthermore, there is a gap of 30 days between the scheduled annuity payment date and the debt obligation date, which provides a cushion in case of delay in annuity.
The first repayment is due in February 2022 and the first 6 months’ interest will be funded out of the sanctioned debt. In the unlikely event of delay in first annuity, payment towards the first instalment is expected to be met by the sponsor, who has given an undertaking to provide funds in case of cash flow mismatches, including due to delay in receipt of annuity.
* Operational experience and financial strength of the sponsor Benefits are likely from the strong operational and financial strength of GRIL, the sponsor and single largest shareholder. GRIL will support any increase in O&M expense beyond the NHAI payout. It will also meet any shortfall in creation of DSRA and debt servicing throughout the loan tenure. Furthermore, GRIL has given an undertaking to provide financial support in case of cost overrun and cash flow mismatch during the construction and operational phases.
Weakness * Susceptibility to changes in operational cost and interest rate GRGDHPL is exposed to risks related to maintenance of the project stretch. If the prescribed standards are not met, annuity payment may be reduced. Any significant delay and deduction in annuities could impact the project's debt-servicing capability. This risk is, however, mitigated by the strong operational track record of the O&M contractor. Furthermore, as operation cost depends on inflation, any significant increase could 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. Bank rate has reduced significantly in the past: it was 6.25% when the project was awarded in March 2018 and now stands at 4.25%. While decline in bank rate can impact cash flows to the project, this is partially offset by the fact that the interest rate on debt is floating and hence is also expected to follow the trend in bank rates, thereby minimising impact on DSCR. |
Liquidity: Strong Liquidity is expected to be comfortable as the project will receive semi-annuities (along with interest) and O&M payout from NHAI starting January 2022. The DSCR is expected to be comfortable over 1 time throughout the tenure of the debt. The first repayment is scheduled for February 2022, seven months from the date of PCOD.
DSRA of three months of interest obligations will be created by August 2021. As per the financing agreement, DSRA covering six months’ interest and principal payments is to be created till receipt of the second annuity and will be maintained throughout the tenure of the debt. However, interest for the first six months till the receipt of the first annuity will be funded from the sanctioned debt of Rs 788 crore. Furthermore, there is a gap of 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 creation, cost overrun and any cash flow mismatches during the operational phase. |
Outlook: Positive The company will benefit from the receipt of PCOD, leading to semi-annual payments from NHAI as well as operational and financial support from GRIL. CRISIL Ratings believes GRGDHPL will complete the remaining work within the budgeted time and cost, supported by the strong project execution capability of GRIL. |
Rating Sensitivity Factors Upward factors:
Downward factors:
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About the Company GRGDHPL is a special-purpose vehicle incorporated on March 28, 2018, for the four-laning of the Gundugolanu-Devarapalli-Kovvuru section of NH-16 from 15.320 km (existing km 15.700) to 85.204 km (existing km 81.400) of design length 69.884 km in Andhra Pradesh on HAM under Bharatmala Parijoyana. GRIL holds 100% of the equity interest in the company.
The concession agreement for the project was executed between the company and NHAI on April 26, 2018, for a period (including construction) of 910 days from the appointed date and fixed operations period of 15 years from the COD. The company received the appointed date of October 22, 2018, and the original scheduled COD was April 19, 2021. However, COD date has been revised to June 30, 2021, after factoring in the NHAI-approved extension due to Covid-19. The project received PCOD dated July 10, 2021 which is within 90 days of the scheduled completion date. About 93% of the project has been completed as of July 2021 and the remaining is expected to be completed by February 2022. |
Key Financial Indicators
^Revenue includes the construction cost incurred in the project as per IND AS accounting requirements |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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Criteria Details
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