| Gawar Pathankot Mandi Highway Private Limited | ||||
| Rating reaffirmed at 'CRISIL A/Stable' | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A/Stable' rating to the long-term bank facility of Gawar Pathankot Mandi Highway Private Limited (GPMHPL; a hybrid annuity project of Gawar Construction Limited [GCL; ‘CRISIL AA-/Positive’]).
The rating factors receipt of appointed date with project progress of 21.5% as on Jan 21, 2023, receipt of two interim milestone payments from National Highways Authority of India (NHAI; ’CRISIL AAA/Stable’) and improved availability of right-of-way (ROW). The project is expected to be completed within the scheduled timeline given the track record of the sponsor and receipt of all major approvals. Timely achievement of COD shall continue to remain a key rating sensitivity factor.
The rating continues to factor in inherent benefits of the hybrid annuity model (HAM), including adequate ROW and approvals, provision for change of scope, inflation indexation of construction, operations and maintenance (O&M) costs and interest payment on annuity during the operational period as per the concession agreement (CA). The rating also reflects low funding risk, operational track record and financial strength of the sponsor, GCL and need-based support from the sponsor during the construction and operational phases. These strengths are partially offset by the moderate implementation risk inherent in under-construction projects. |
Analytical Approach CRISIL Ratings has notched up the standalone rating of GPMHPL, based on the expectation of strong support from its parent, GCL, both on an ongoing basis and in the event of distress. |
Key Rating Drivers & Detailed Description Strengths: Inherent benefits of HAM Benefits of HAM include 80% ROW assured on the appointed date (AD) and cost escalation assurance provided by the NHAI in the construction and operational stages. HAM also allows for provisional commercial operations date (PCOD) to be issued upon completion of construction on the land made available up to 180 days from AD, thereby allowing for full annuities to be paid as if all works of the project have been completed. The concessionaire will be required to complete construction on the remaining land whenever it is made available post the PCOD. Furthermore, the HAM concession agreement allows for change in scope on land not available within 146 days of the AD, thereby reducing completion cost and the corresponding annuity and O&M payments, while facilitating on-time completion of the project. Other benefits include indexation done to the bid project cost (BPC) and O&M cost to the extent of inflation movement, and interest payments on residual annuity payments in the operational period. The company has received the appointed date on June 10, 2022 and first milestone has been completed on Jan 21, 2023 as against scheduled date of Nov 16, 2022. The delay was due to monsoon season.
The company has signed a fixed-price, fixed-time engineering, procurement and construction (EPC) contract with GRIL, which has more than two decades of experience in construction of roads and highways, and a strong track record of project execution within the budgeted time and cost.
The bid project cost (BPC) is Rs 529 crore. GPMHPL has completed the process of financial tie-up for the project at a cost of Rs 492 crore (93.0% of BPC), funded by an NHAI grant of Rs 212 crore, debt of Rs 220 crore and balance through equity. Funding risk is low as the company achieved financial closure in November 2021; no debt has been drawn out as on date. Of NHAI’s share, 40% will be given on project milestone basis (10 milestones as per the CA). Furthermore, GCL has provided an undertaking on financial support if there is any cost overrun or cash flow mismatch during the construction and operational phases.
Expected operational and financial support from the sponsor GPMHPL will benefit from the strong operational and financial support of GCL, which own 100% of the company’s shares. GCL has a track record of more than two decades in the EPC segment and has worked with established developers and undertaken build-operate-transfer/HAM projects as a sub-contractor. GCL has a portfolio of 15 HAM projects of which 4 have achieved commercial operation date (COD). All these projects have become operational well ahead of the scheduled timelines. Other HAM projects which are under construction phase are also running well ahead of their respective completion timelines.
Apart from cost overrun, GCL will support any increase in operations and maintenance (O&M) expense during the construction phase. GCL will also meet any shortfall in creation of debt service reserve account (DSRA) and debt servicing during the operational phase. GCL will also fund any increase in O&M expense beyond the NHAI pay-out during the operational phase.
Weakness Exposure to implementation risks The project is running slightly behind schedule due to monsoon season. The actual physical progress was 20.4% as on Jan 21, 2023. ROW of 100% is available and other major approvals have been received. The fixed-price fixed-time EPC contract with GCL and its strong execution capabilities will support implementation. While the project has moderate complexity, any delay in project implementation will be closely monitored. |
Liquidity: Strong Operations are yet to begin and the first repayment is scheduled post-achieving commercial operation date (COD). Liquidity is expected to be adequate post-completion as the project will receive semi-annual annuities (along with interest) and O&M pay-out from NHAI. Debt service coverage ratio is expected above 1 time throughout the tenure of the debt. Repayment will begin seven months from the scheduled commercial operation date (SCOD)/COD, which provides additional cushion. Furthermore, DSRA equivalent to six months of debt (interest and principal) obligations will be created. Three months of interest obligation will be created upfront by the sponsor on COD, and the balance three months of interest as well as one principal instalment will be created in a phased manner till receipt of first two annuities. Moreover, GCL has provided an undertaking for financial support for cash flow mismatches during the construction and operational phases of the project |
Outlook: Stable GPMHPL will benefit from the significant ROW received and the operational and financial support from the sponsor, GCL |
Rating Sensitivity factors Upward Factors * Significant physical progress of the project (more than 50%) within scheduled timeline * Completion of the project on or before time (730 days from appointed date) within the budgeted cost * Timely receipt of first annuity and creation of DSRA
Downward Factors * Significant delay in receipt of PCOD by two years from appointed date * Significant cost overrun * Weakening of the credit risk profile of the sponsor, GCL |
About the Company GPMHPL is a special purpose vehicle (SPV) incorporated on June 8, 2021 for rehabilitation and upgradation to four laning configuration and strengthening of Mo to Sihuni from km 42.00 to km 51.00 (design length 8.33 km) of national highway (NH) 20 (new NH-154) of Pathankot-Mandi section in Himachal Pradesh on HAM. The project was awarded by NHAI in May 2021, and the CA was signed on July 8, 2021 for a concession period including construction period of 730 days from the AD and fixed operations period of 15 years from COD. The pavement type is fully flexible (bitumen) except the tunnels. GCL controls 100% of the equity interest in GPMHPL.
The BPC is Rs 529 crore and O&M cost is Rs 2 crore. Both are adjusted for price index variation between the bid date and the milestone date to arrive at the completion cost (for BPC) and each O&M payment (for O&M bid cost). The project will be funded by NHAI to the extent of 40% of adjusted BPC (adjusted for price multiple indexation) during the construction phase, while the balance 60% will be paid out as annuity during the operational phase. The company has tied-up funding for the project and achieved financial closure on November 22, 2021. |
Key Financial Indicators#
#Financial indicators are not applicable as the project operations are yet to begin |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Mobilisation bank guarantee of Rs 58.19 crore as sublimit of rupee term loan facility |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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