| IOT Utkal Energy Services Limited | ||
| Rating Reaffirmed | ||
| 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 AAA/Stable' rating on the non-convertible debentures (NCDs) of IOT Utkal Energy Services Limited (IOT Utkal). Further, CRISIL Ratings has withdrawn its rating on non-convertible debentures of Rs. 210 crores on receipt of repayment confirmation from the debenture trustee. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of ratings.
The rating continues to reflect high criticality of the company's facilities to, and strong credit quality of, its sole counterparty, Indian Oil Corporation Ltd (IOCL; 'CRISIL AAA/Stable/CRISIL A1+'). The rating also factors in the stability of cash flow that is ensured through annuity-based contract, robust payment mechanism, and strong experience of contractor for operations and maintenance (O&M). These strengths are partially offset by the exposure to O&M risk.
As mentioned previously, CRISIL Ratings had taken note of report (dated May 6, 2023) on the Adani group submitted by Expert Committee constituted by the Supreme Court of India and movement of SEBI’s investigation regarding minimum public shareholding, disclosure of transactions with related parties in accordance with law and stock price manipulations of the group’s entities. Since the rating of IOT Utkal centrally factors the stability of cash flows ensured through the annuity-based contract, a waterfall payment mechanism through escrow account and presence of a strong counterparty (IOCL), any adverse impact on the credit risk profile of the Adani group is expected to have limited impact on the credit risk profile of IOT Utkal. However, CRISIL Ratings will continue to monitor the developments related to any adverse regulatory/ government action in the wake of earlier published Hindenburg research report, emerging issues around corporate governance, ongoing investigations ordered by the Supreme Court or a decline in Adani group’s resource raising capabilities from banks or capital markets.
Separately, there are two ongoing tax litigations related to works contract tax and service tax matters for which the company has made certain provisions and maintained cash buffers against some of these disputes. The progress on the legal cases pertaining to these contingent issues, and the results thereof, will be key monitorables. |
Analytical Approach For its analysis, CRISIL Ratings has taken a standalone view on the credit risk profile of IOT Utkal. |
Key Rating Drivers & Detailed Description Strengths:
IOT Utkal's crude and product storage tank facility plays an integral role in the smooth operations of IOCL's Paradip refinery in Odisha. Furthermore, its sole counterparty, IOCL, has strong credit quality, which provides stability to cash flows. Additionally, IOCL, through its shareholding in IAVL, indirectly holds 35% stake in IOT Utkal. In the past, IOCL had also demonstrated its support by providing advance monthly payments to fund project construction.
The company benefits from the fixed cash flows arising from its contractual agreement with IOCL, and complete pass-through of O&M costs through a back-to-back arrangement with IAVL. IOT Utkal is liable to pay IAVL only after it has received payments from IOCL. IAVL is a strong and experienced O&M contractor with more than two decades of experience in providing terminalling services in India at various locations.
The company has a well-defined waterfall payment structure through an escrow account, adequate debt service coverage ratio (DSCR), and creation of liquidity facility in the form of debt service reserve account (DSRA). As per the agreement, monthly cash flows from IOCL will be used to pay investors. Any excess cash after the payout and special-purpose vehicle (SPV) expenses will first be used to top up DSRA, if needed, before being taken out of the company. IOT Utkal has been receiving timely payments from its counterparty and will continue to do so irrespective of utilisation of facilities by IOCL.
Weakness:
Payment of monthly operation charges may vary if the volume of products handled by IOT Utkal is lower than the targeted requirement for IOCL as per the contract. However, routine nature of the O&M expenses and its low cost mitigate the risk. Furthermore, the O&M agreement with IAVL is on a back-to-back basis and on similar terms with IOCL; and a full pass-through for any performance deductions provides added comfort. |
Liquidity: Superior Presence of an annuity-based model leads to contractual cash flows from IOCL. IOT Utkal also maintains a DSRA of three months to account for any timing mismatch in receipt of contractual cash flows. Cash and liquid investment balance amounted to Rs. 436 crore as on August 31, 2023, of which Rs. 331 crore is unencumbered. Of encumbered cash, the company has Rs. 105 crores lien out of which Rs. 39 crores is marked towards DSRA and Rs. 66 crores is marked towards tax matter. The is also DSRA BG of Rs. 74 crores. |
Outlook: Stable The outlook reflects CRISIL Rating’s outlook on IOCL. IOCL is the sole counterparty of IOT Utkal and has a strong credit profile, thereby providing significant cash flow stability. |
Rating Sensitivity factors Downward factors
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About the Company IOT Utkal is a SPV promoted by IAVL, APSEZ and IVRCL. It was formed to set up crude and product storage tanks on build-own-operate-transfer (BOOT) basis to meet the requirements of IOCL’s 15 million tonne per annum refinery in Paradip. The company achieved successful mechanical completion of facilities and commissioning of tankages in November 2013, which is the commercial operations date (COD). It started receiving monthly payments from IOCL as per the terms of contract. The BOOT period is 15 years from COD (up to October 2028). The company has been receiving annuity payments regularly since commissioning of the facility. It has also received additional annuity on account of change of scope on arrears basis.
During January 2023, Oiltanking GmbH and Oiltanking India GmbH (together ‘Oiltanking’) sold their entire equity stake in IOT Utkal as well as in IndianOil Adani Ventures Limited (IAVL; earlier known as ‘Indian Oiltanking Limited’), respectively, to Adani Ports and Special Economic Zone Limited (APSEZ). At present, Adani Ports directly holds 10% stake in IOT Utkal and 49.38% stake in IAVL. As such, Adani Ports also holds ~35% stake in IOT Utkal indirectly through IAVL.
Salient features of the NCD
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Key Financial Indicators(CRISIL Ratings - adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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