IL&FS Transportation Networks Limited

Total Bank Loan Facilities Rated Rs.8100 Million (Reduced from Rs.25550 Million) Long Term Rating CRISIL A/Negative (Reaffirmed) Long Term Rating Withdrawal Short Term Rating CRISIL A1 (Reaffirmed) Short Term Rating Withdrawal

(Refer to Annexure 1 for Facility-wise details)

Rs.250 Million Non Convertible Debentures CRISIL A/Negative (Withdrawal) Rs.2 Billion Commercial Paper CRISIL A1 (Withdrawal)

CRISIL has reaffirmed its ratings on IL&FS Transportation Networks Ltd's (ITNL's) bank facilities at 'CRISIL A/Negative/CRISIL A1'. CRISIL has also withdrawn its ratings on some of ITNL's bank facilities and debt programmes, as these facilities have been paid off and there is no amount outstanding against them.
 
The ratings continue to reflect CRISIL's belief that ITNL will maintain its strong business risk profile over the medium term, supported by its robust market position in the road sector, strong project execution skills, and strong management team with extensive industry experience. The ratings also factor in the reduction in the company's refinancing risk due to the long-term loans it raised in 2012-13 (refers to financial year, April 1 to March 31), which were utilised to partly repay the erstwhile short-term loans. These rating strengths are partially offset by ITNL's weak capital structure due to significant equity commitments to capital-intensive build-operate-transfer projects, and sizeable funding support to its subsidiaries/special-purpose vehicles (SPVs) in the initial stages of their project life cycles.
 
For arriving at its ratings, CRISIL has adopted a moderate integration approach with respect to ITNL's project SPVs. CRISIL has factored in the equity and cost-overrun support from ITNL to its SPVs, and additional support in the event of any distress in the initial years of their operations. Also, CRISIL has combined the business and financial risk profiles of ITNL and ITNL's foreign subsidiaries, Elsamex SA, ITNL International Pte Ltd (IIPL), and ITNL Offshore Pte Ltd (IOPL), collectively referred to herein as ITNL, as ITNL has provided support to the debt of these subsidiaries.
 
ITNL continues to be a market leader in the road sector, with a fairly diversified portfolio of 25 projects in its road assets portfolio in 16 states covering around 13,000 lane kilometres. The company added around Rs.70 billion of projects to its portfolio in 2012-13, of which around 70 per cent were road projects. Despite a sluggish economic environment and muted activity in the road sector, it managed to win large projects due to its strong market position and financial flexibility. Furthermore, reduced competitive intensity is expected to be advantageous for established players such as ITNL in bidding for new projects. ITNL's well-diversified road portfolio, which is well spread out geographically, along with a healthy mix of annuity/toll and national highway/state road projects, will mitigate the impact of risks arising from its revenue concentration in a single sector. The company has a presence in other surface transportation businesses such as metro rail, bus services, and border entry points; however, exposure to these sectors remains small. ITNL has an established track record of successful completion of projects on time and within the budgeted cost. Additionally, the performance of the acquired road asset, Chongqing Yu He Expressway Company Ltd (Yu He), China, in December 2011, continues to be as per the company's and CRISIL's expectations.
 
ITNL's gearing continues to be high. The company's standalone adjusted gearing deteriorated to 1.9 times as on March 31, 2013, as against 1.5 times as on March 31, 2012, due to increase in debt which was primarily utilised towards working capital requirements and funding equity requirements of under-construction projects. Also, its consolidated gearing (as per a moderate integration approach) deteriorated to 2.9 times from 2.4 times over this period. However, the foreign subsidiaries supported by ITNL continue to perform as per the company's and CRISIL's expectations. The equity and support requirements for existing projects along with equity requirement for new projects that are likely to be added over the next three years are likely to put further demands on the company's cash flows. Furthermore, ITNL's foreign subsidiary, IIPL, which acquired Yu He, will continue to require funding support for debt servicing. This would lead to a sustained increase in gearing and hence continue to constrain the company's capital structure over the medium term. ITNL has raised preference shares aggregating to Rs.4000 million in September 2013 and Rs.2530 million in December 2013. CRISIL also understands that ITNL plans to infuse equity in 2013-14, which would reduce the pressure on its financial risk profile. Equity infusion will be critical to address the increasing trend in gearing and would be a key rating sensitivity factor.

CRISIL believes that ITNL's gearing will remain relatively high over the medium term. The ratings may be downgraded if the company's capital structure deteriorates more than expected, most likely because of delay in equity infusion, larger-than-expected funding support extended to subsidiaries and SPVs, or debt-funded acquisitions. Significant deterioration in ITNL's operating performance because of considerable delays in the execution of projects may also result in a rating downgrade. Conversely, the outlook may be revised to 'Stable' if there is substantial and sustained improvement in ITNL's capital structure, most likely driven by timely and adequate infusion of equity.

ITNL was set up in 2000 by Infrastructure Leasing & Financial Services Ltd (IL&FS) in order to consolidate its road infrastructure projects and pursue new projects in surface transportation infrastructure through the public-private-partnership route. ITNL is primarily involved in development, operation, and maintenance of national and state highways.  The company has diversified into other segments of transportation, such as metro rail, and bus services.
 
ITNL, on a standalone basis, reported a profit after tax (PAT) of Rs.2.7 billion for 2012-13 as against a PAT of Rs.2.5 billion for 2011-12.