| HG Raipur Visakhapatnam OD-5 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 |
The project has achieved second milestone five days ahead of schedule; however, it is slightly running behind schedule in the third (~45% physical progress as on August 31, 2023) due to early and heavy monsoon in the first half of fiscal 2024, delays in encumbrance free land handover by the National Highways Authority of India (NHAI; 'CRISIL AAA/Stable'), delays in approval for estimates of utility shifting and additional/change in scope of work. However, progress is expected to ramp-up substantially in the second half of fiscal 2024, supported by resolutions of these issues and established track record of HGIEL.
In the last fiscal, execution for the first milestone was delayed by 60 days. However, HGIEL sharply ramped up the progress and completed the second milestone five days ahead of schedule. The company has applied for extension of timeline (EOT) for around 130 days. The company has received ~85% right-of-way (ROW) and approvals are also in place, which are critical during the construction phase of the project. ROW remains lower as the company has identified additional land to be acquired in December 2022, which is post the appointed date (AD, received on May 30, 2022). Stage-2 forest clearance has been received, however, full land handover is yet to happen. The project has so far been largely funded out of four milestone payments from NHAI within due date (Rs 239 crore excluding inflation component), term loans (debt disbursement of Rs 140 crore as on May 19, 2023), mobilisation advances and funds from the sponsor (Rs 138 crore infused).
The rating continues to reflect the benefits that HGRVOD-5PL derives from the hybrid annuity model (HAM), such as receipt of ROW and approvals. The rating also factors in the low funding risk, and expected operational and financial support from the sponsor, HGIEL. These strengths are partially offset by exposure to moderate implementation risk inherent in under construction projects. |
Analytical Approach CRISIL Ratings has notched up the standalone rating of HGRVOD-5PL, based on the expectation of strong support from its sponsor, HGIEL, both on an ongoing basis and in the event of distress. |
Key Rating Drivers & Detailed Description Strengths Benefits of HAM and receipt of moderate ROW and approvals The company has received ~85% ROW and approvals are also in place, which are critical during the construction phase of the project. ROW remains lower as the company has identified additional land to be acquired in December 2022, which is post the AD (received on May 30, 2022). Stage-2 forest clearance has been received, however, full land handover is yet to happen. Nevertheless, inherent benefits of HAM support the project.
Under the HAM concession agreement (CA), 80% ROW has to be handed over at the 3G stage (compensation decided) and major approvals have to be provided for declaration of the AD. The other benefits of HAM include change of project scope if 100% ROW is not provided within 180 days of the AD. Furthermore, the clause on provisional commercial operation date (PCOD), which states PCOD will be issued on completion of construction on the land made available up to 146 days from the AD (thereby allowing for annuities to be paid as if all works of the project have been completed), is also critical during the operational phase. The project also enjoys cost-escalation assurance provided by the NHAI.
Moreover, HGRVOD-5PL has signed a fixed-price, fixed-time contract with HGIEL, which has extensive domain expertise and experience of more than three decades in the construction business. The company has a track record of project execution within budgeted time and cost and has completed three HAM projects till date.
Low funding risk The total bid project cost (BPC) is Rs 1,492 crore. The company has completed the process of financial tie-up for the project at a cost of Rs 1,493 crore (100% of BPC), funded by an NHAI grant of Rs 597 crore, debt of Rs 667 crore and the balance through equity. Funding risk is low as the company has tied up funding for the bank loan and has started disbursement. The project has achieved ~36% physical progress till May 31, 2023, which has largely been funded out of four milestone payments from NHAI, term loans, mobilisation advances and funds from the sponsor. The sponsor has brought in nearly 60% of its equity contribution and has availed debt disbursement of Rs 140 crore as on May 19, 2023. Furthermore, HGIEL has given an undertaking to provide financial support in case of cost overrun and cash flow mismatch during the construction and operational phases.
Expected operational and financial support from the sponsor HGRVOD-5PL will benefit from the strong operational and financial support of HGIEL, with 100% of shareholding. Apart from cost overrun, HGIEL will support any increase in operations and maintenance (O&M) expense during the construction phase. HGIEL will also meet any shortfall in debt servicing during the operational phase. Furthermore, any increase in O&M expense beyond NHAI pay-out during the operational phase will be met by HGIEL. The sponsor has a track record of more than three decades in the engineering, procurement and construction (EPC) segment and has worked with established developers and undertaken EPC/HAM projects as a sub-contractor. The sponsor has the financial flexibility to support its projects, if needed.
Weakness: Moderate implementation risk The company faces moderate implementation risk as the project has achieved physical progress of ~36% as on May 31, 2023 and is running behind schedule due to early monsoon in the first quarter of fiscal 2024, delays in encumbrance free land handover by NHAI, delays in approval for estimates of utility shifting, additional/change in scope of work, among others. The company has applied for EOT for around 130 days. Nevertheless, implementation risk is mitigated by fixed-price, fixed-time EPC contract with HGIEL; moderate technical complexity of the project and strong project execution capability of the sponsor. HGIEL has expertise spanning more than three decades in the construction business and a track record of project execution within the scheduled time and budgeted cost. In case of any delay in the project, HGIEL will provide financial support in line with the sponsor supporting the undertaking. However, any significant delay in project implementation will remain a rating sensitivity factor. |
Liquidity: Strong The project is currently under construction and the first repayment is scheduled after achieving COD. Liquidity should be adequate post-completion of the project, on receipt of semi-annual annuities (along with interest) and O&M payout from NHAI. Debt service coverage ratio is expected to be above one time throughout the debt tenure. Repayment will begin seven months from the scheduled commercial operation date/PCOD, thus providing an additional cushion. Furthermore, debt service reserve account (DSRA) equivalent to six months of debt (interest and principal) obligations shall be created in a phased manner till the receipt of the second annuity. Furthermore, HGIEL has given an undertaking to provide financial support to cover cash flow mismatches during the construction and operational phases. |
Outlook: Stable HGRVOD-5PL will execute the project within the budgeted time and cost, supported by strong execution capability of, and the fixed-time, fixed-price EPC contract with, its sponsor. The project also benefits from the undertaking by HGIEL to meet any cost overrun, shortfall in debt servicing, and O&M expenses. HGRVOD-5PL will also receive operational and financial support from HGIEL. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company HGRVOD-5PL is a special purpose vehicle incorporated on November 24, 2021, for the development of the six-lane Kaliagura–Baunsaguar section of National Highway 130-CD road from kilometre (km) 249+000 to km 293+000 under Raipur-Visakhapatnam economic corridor in Odisha on HAM. The project was awarded by NHAI in October 2021 and the CA was signed on December 14, 2021, for a concession period including construction period of 730 days from AD and fixed operations period of 15 years from COD. The pavement type is fully flexible (bitumen) except the toll plaza. HGIEL controls 100% of the equity interest in HGRVOD-5PL.
The BPC is Rs 1,492 crore and O&M bid cost is Rs 5 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 March 25, 2022. The project received AD on May 30, 2022. |
Key Financial Indicators^
^Financials not relevant as the project is under construction |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Mobilisation bank guarantee of Rs 102.61 crore as sublimit of rupee term loan facility Short-term loan of Rs 149.21 crore as sublimit of rupee term loan Performance bank guarantee of Rs 44.76 crore as sublimit of rupee term loan facility **Mobilisation bank guarantee of Rs 61.52 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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*Mobilisation bank guarantee of Rs 102.61 crore as sublimit of rupee term loan facility
Short-term loan of Rs 149.21 crore as sublimit of rupee term loan
Performance bank guarantee of Rs 44.76 crore as sublimit of rupee term loan facility
**Mobilisation bank guarantee of Rs 61.52 crore as sublimit of rupee term loan facility
Criteria Details
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