Rating Rationale
August 31, 2020 | Mumbai
GV Techparks Private Limited
'CRISIL A-/Stable' assigned to bank debt
 
Rating Action
Total Bank Loan Facilities Rated Rs.1500 Crore
Long Term Rating CRISIL A-/Stable (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A-/Stable' rating to the long-term bank facilities of GV Techparks Pvt Ltd (GVTPL; part of certain entities owned and controlled by The Blackstone Group Inc. and Salarpuria Sattva group). GVTPL owns 4.1 million square feet (msqft) of commercial project, Sattva Global City, situated in Bangalore.
 
The rating reflects GVTPL's steady cash flow, supported by healthy occupancy and good clientele, moderate debt protection metrics and strong operational and managerial support from the sponsor groups. These strengths are partially offset by high customer concentration in revenue and susceptibility to volatility in interest rates and occupancy.
 
CRISIL has taken cognizance of the measures taken by the central government to contain the spread of the Covid-19 pandemic. Subdued economic activity and the work-from-home practice adopted by some corporates could lead to increased vacancy in fiscal 2021. Furthermore, construction activity was completely halted during the lockdown to contain the pandemic, which may delay the project. CRISIL will continue to monitor developments with respect to the pandemic.

Analytical Approach

For arriving at the rating, CRISIL has taken a standalone view of GVTPL as it has only one asset on its books and there are no financial linkages with other group companies.

Series B optionally convertible debentures (OCDs) of Rs 597 crore have been treated as neither debt nor equity as they are subscribed by Mindcomp Regency Pvt Ltd (Mindcomp), promoted by the Blackstone and Salarpuria-Sattva groups, and will be knocked off on the demerger of asset from GVTPL to Mindcomp.

Key Rating Drivers & Detailed Description
Strengths:
* Steady cash flow, supported by healthy occupancy with good clientele
Sattva Global City, erstwhile known as Global Village Techparks, is a commercial information technology (IT) park spread over 100 acres in south-west Bengaluru on a national highway. The park comprises 4.1 m sq ft of leasable area and has a healthy occupancy of around 86%. Clientele includes Mindtree, Accenture, Mphasis, NTT Global and Sonata software. Tower F, with 0.54 m sq ft of leasable area, was completed towards end of FY 2019-20, and is in the process of being leased out. The rating factors in the well-secured lease structure, with lease period of 5-12 years and revenue escalation varying between yearly or 3 year escalation tenors for most tenants.
 
* Moderate debt protection metrics
Debt service coverage ratio (DSCR) is well above 1 time throughout the tenure of the loan. Average DSCR is expected to remain moderate at 1.4 times over the tenure of the debt. The company is expected to contract additional top-up loan of Rs 150 crore in fiscal 2021. Debt protection metrics are supported by adequate liquidity in the form of a debt service reserve account (DSRA), covering four months of debt obligation. However, any increase in borrowings beyond the current debt level, in the absence of additional revenue stream, will impact the financial risk profile and hence will remain a key monitorable.
 
* Strong operational and management support from the sponsor
GVTPL, is effectively controlled by Mindcomp, and promoted by certain entities owned and controlled by The Blackstone Group Inc. and the Salarpuria-Sattva group by way of contribution through Series B OCDs and presence on the board. Certain entities owned and controlled by The Blackstone Group Inc. owns and operates one of the largest portfolios of commercial real estate in India, spread across all major micro markets in the country. Moreover, the Salarpuria-Sattva group has a strong brand presence in the real estate market and has developed around 48 msqft of real estate space, mostly in Bengaluru and Hyderabad. Additionally, the company benefits from the management's proactive approach towards asset maintenance to ensure tenant longevity and quality.
 
Weaknesses:
* High customer concentration
The top five tenants occupy around 80% of leased area and account for 75% of revenue. Surrender of lease by any of these tenants will significantly weaken GVTPL's financial risk profile. However, the company has long-term agreements of at least five years with rent escalation in every 3 years with most tenants, providing revenue visibility. Around 50% of the agreements will be up for renewal over the next three fiscals through 2023. However, this should not pose a risk as a large proportion of these agreements have built-in automatic renewal options. Rentals are below the market rate with upside potential of 20-30% on mark-to-market rentals for some tenants. Existing rentals are lower than other properties in the micro-market, providing high stickiness of tenants. Ultimate weighted average lease expiry is high at 10.7 years, which indicates long-term commitment.
  
* Susceptibility to volatility in interest rates and occupancy
Cash inflow is susceptible to volatility in occupancy or realisations (a function of rentals per sq ft), while cash outflow is relatively fixed except for fluctuations in interest rates (as they are floating). The economic impact of the pandemic poses a downside risk to occupancy as it can materially impact market rentals and demand. Around 14% of the total leasable area is still vacant and in the process of being leased. Time taken for renewal/leasing of this area at better terms compared with existing agreements will be critical. Although cash flow will be able to absorb the impact of fluctuations in interest rates and occupancy partially, these remain key monitorables.
Liquidity Adequate

Liquidity is adequate, DSCR is expected at 1.3 times for fiscal 2021 and will remain at around 1.4 times throughout the tenure of the debt. Debt protection metrics are supported by a debt service reserve account (DSRA) that covers 4 months of debt obligation.

Outlook: Stable

CRISIL believes GVTPL will continue to benefit from stable cash flow, backed by lease contracts with reputed companies. 

Rating Sensitivity factors
Upward Factors
* Increase in rental income by over 15% per annum while maintaining costs, strengthening surplus generation and debt protection metrics
* Reduction in debt obligation through prepayment
 
Downward Factors
* Weakening of debt protection metrics due to lower-than-expected cash flow, resulting from vacancy of more than 10%, lower-than-expected lease rental rates or inability to lease vacant area in a timely manner
* Draw down of any incremental debt
* Any change in the transaction structure or delay in closure of Series A or Series B OCDs
About the Company

Incorporated in 2019, GVTPL is currently held by the Tanglin Developments Limited (a CCD group company), however effective control of the entity lies with Mindcomp ( joint venture between certain entities owned and controlled by The Blackstone Group Inc. and Salarpuria-Sattva group) . The company was formed to own and operate the commercial asset, Sattva Global City, in Bengaluru, and undertake real estate development on the remaining land parcel.

Key Financial Indicators
As on/for the period ended March 31, Units 2019 2020
Operating income Rs crore NA NA
Profit after tax (PAT) Rs crore NA NA
PAT margin % NA NA
Adjusted debt/adjusted net worth Times NA NA
Interest coverage Times NA NA
*Incorporated in August 2019, post transfer of business from erstwhile promoters through a business transfer agreement

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs Cr) Complexity Level Rating assigned with outlook
NA Term loan NA NA 28-Feb-34 1350.0 NA CRISIL A-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA NA NA CRISIL A-/Stable
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  1500.00  CRISIL A-/Stable    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 150 CRISIL A-/Stable -- 0 --
Term Loan 1350 CRISIL A-/Stable -- 0 --
Total 1500 -- Total 0 --
Links to related criteria
CRISILs criteria for rating debt backed by lease rentals of commercial real estate properties
CRISILs Bank Loan Ratings
The Rating Process

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