Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the long-term bank facilities of Oriental Infratrust (OIT). Also, CRISIL Ratings has withdrawn its rating on the proposed long term bank loan facility aggregating to Rs 2418.76 crore on receipt of confirmation from the client that the  process of refinancing the outstanding term loan facilities of Rs. 2,307.03 Cr has been completed and remaining amount has not been availed. The rating action is in line with the CRISIL Ratings policy on withdrawal of ratings.

 

OIT has completed the process of refinancing the outstanding rupee term loan of Rs. 2,307.03 Crore with the tenor of the loan being increased from FY33 till FY40.

 

The rating factors in satisfactory traffic recovery post disruptions caused by the Covid-19 pandemic, healthy increase in toll rates in fiscal 2023 and acquisition of Biaora to Dewas Highway Pvt Ltd (BD) in October 2022. Toll revenue has shown resilient recovery, as reflected in average daily collection (for all the five toll assets) of ~Rs. 4.0 Crore in 11 months of FY23 as compared to ~Rs. 3.4 Crore in FY22. For BD, the average daily toll collection stands at ~Rs. 0.63 Crore in 11 months of FY23 as compared to ~Rs. 0.56 Crore in FY22.

 

The rating continues to reflect the strong business risk profile of the trust driven by healthy track record of toll collection, favourable location of the project roads, which supports toll revenue, an established track record of timely receipt of annuities and well-defined waterfall mechanism ensuring priority in debt-servicing. These strengths are partially offset by susceptibility of toll revenue to volatility in traffic, development or improvement of alternative routes and moderate debt service coverage ratio (DSCR) susceptible to future acquisitions.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of five toll roads, Etawah-Chakeri (Kanpur) Highway Pvt Ltd (EC), Oriental Nagpur Bye-Pass Construction Pvt Ltd (NBP), Oriental Pathways (Indore) Pvt Ltd (IK), OSE Hungund Hospet Highways Pvt Ltd (HH) and BD, and one annuity road, Oriental Nagpur Betul Highway Ltd (NB). This is because the infrastructure investment trust (InvIT) has direct control over the special-purpose vehicles (SPVs) and will support them during exigencies.

 

All external debt, except the debt of Rs. 400 Crore proposed to be continued by India Infradebt in BD, the debentures in IK from India Infradebt Ltd and the debentures in NB, is raised in OIT. However, the debt of the NB annuity project has not been consolidated. Surplus cash flow post servicing of non-convertible debentures (NCDs) of NB has been considered. That’s because servicing of the NCDs in NB has first right on cash flow from the annuity project given its priority, but the project will provide incremental benefit of surplus cash flows (post SPV level debt servicing) to the trust. Lenders of NB will not have rights over the securities of other SPVs; however, lenders of OIT will have rights over surplus generated by NB after covering all expenses and external debt servicing. The debt at OIT will be serviced through cash flows from each SPV to the trust (including interest and principal obligations of downstream loans provided by OIT to SPVs as well as dividend/capital repayment) under a cross-guarantee structure. This implies that any default such as non-maintenance of a debt service reserve account (DSRA) or a major maintenance reserve account (MMRA) under either loan shall trigger default in the other and cessation of cash flow to investors.

 

The SPVs must mandatorily dispense 100% (as per the information memorandum) of their net distributable cash (post servicing of debt) to the InvIT, leading to highly fungible cash flow.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

• Healthy track record of toll collection and favourable location of the project roads support toll revenue

All toll roads with the trust have operational track record and toll collection period of around 4-12 years. Although competing roads exist, OIT’s roads are part of national highways (NHs) and are arterial as they connect important destinations or are key links for traffic movement. The stretches are diversified across four key states, Uttar Pradesh, Maharashtra, Madhya Pradesh and Karnataka, which drive around a third of India’s gross state domestic product.

 

Average daily toll collection has been consistently improving, with growth of over 15% in fiscal 2022 over fiscals 2020 and 2021 and growth of ~19-20% in 11 months FY23 over fiscal 2022, for all the five toll assets including BD. The average daily toll collection (including BD) stands at ~Rs 4.0 Crore in 11 months of FY23.

 

Because of the arterial nature of OIT’s road stretches, traffic has recovered and grew just over 10% in fiscal 2022 over fiscal 2020. Toll revenue is expected to grow more than 15% per annum in fiscal 2024.

 

• Established track record of timely receipt of annuities

NB receives annuity from National Highways Authority of India (NHAI; 'CRISIL AAA/Stable'). Under this arrangement, NHAI makes a fixed semi-annual payment over the concession period to the concessionaire. In March 2022, NHAI and NB entered into a settlement agreement to settle various claims of NB under the concession agreement. NB had received a settlement amount of ~Rs 582.75 crore (which was passed on to Oriental Structural Engineers Pvt Ltd [OSE]) and the annuity schedule was preponed by 129 days.

 

NB has received 16 annuity payments till date from August 21, 2015, without delays or deductions. The rated loan benefits from surplus from NB after servicing of the NCDs of SPVs.

 

• Well-defined waterfall mechanism

Escrow bank accounts for all SPVs provide comfort and any changes based on new escrow agreements will be subject to NHAI approval. All inflows from the SPVs will be collected in the escrow accounts and all proceeds will be utilized/applied as per the waterfall mechanism. Furthermore, the lenders will have control over the surplus account of NB, wherein surplus amount will be collected after covering all expenses and meeting debt obligation.

 

Weaknesses:

• Susceptibility of toll revenue to volatility in traffic, or development or improvement of alternative routes

Toll collection is susceptible to volatility because of toll leakages, competing routes, lack of timely increase in toll rates, fluctuation in wholesale price index-linked inflation, seasonal variations in vehicular traffic and economic downturns. For instance, HH saw decline in traffic in fiscals 2016 and 2017 owing to banning of mines around the road.

 

• Moderate debt servicing cushions (DSCRs) susceptible to future acquisitions

CRISIL Rating’s expected DSCR (over the remaining tenure of debt) remains at comfortable levels post factoring the proposed refinancing till FY40. Further increase in leverage in the existing asset pool (including BD) or aggressive debt-funded acquisitions, resulting in deterioration of expected DSCR, over remaining debt tenor will be key monitorables.

 

The structure of the loans provides for a DSRA equivalent to one quarter of debt obligation to cover cash flow mismatch. CRISIL Ratings has factored in extension of around three years in the concession tenure for HH, which will support the average DSCR. However, delay, non-availability of extension or extension of the concession agreement by less than 20% will be key monitorables.

Liquidity: Superior

The SPVs (including NB) and the InvIT cumulatively had reserve of over Rs 1,090 Crore (including DSRA/debenture redemption reserve of ~Rs. 520 Crore, major maintenance reserve and other reserves of around Rs 570 Crore), along with around Rs 168 Crore of unencumbered liquidity as of March 09, 2023. Cash flow available for debt-servicing in the next three years is expected above Rs 850 Crore per annum (including surplus cash flow of NB) and will sufficiently cover yearly debt obligation of Rs 550-650 crore.

Outlook: Stable

OIT will continue to benefit from healthy toll revenue over the medium term backed by strong traffic potential on the project stretches.

Rating Sensitivity Factors

Downward Factors

• Toll revenue growth of less than 13-15% compound annual growth rate over fiscals 2021-2026 (after adjusting for one-time or Covid-19 related factors)
• Increase in leverage (for the current asset pool, including BD) and/or debt-funded acquisitions at aggressive valuations, leading to lower-than-expected DSCR
• Delayed extension or extension of the concession agreement lesser-than-expected for HH by NHAI

 

Key transaction terms

•                   Waterfall at individual SPVs:
• Statutory dues
• O&M expenses
• Concession fee, if any
• Interest servicing to the InvIT
• Repayment of principal to the InvIT
• Premium payment to NHAI (if any)
• Debt service reserve transfer to the borrower
• Major maintenance reserve requirements
• Any other reserves as may be specified by the lenders
• Distribution to the borrower

 

•                   Waterfall at OIT:
• Statutory Dues
• Operating expenses
• Interest payment to lenders
• Repayment to lenders
• Debt service reserve
• Additional debt service reserve
• Cash trap bucket
• Cash sweep reserve
• Any other reserve (including for capital expenditure) as may be stipulated by lenders
• Distribution to unitholders

 

Cash sweep reserve

On occurrence of any of the cash trap trigger events, the entire cash in the waterfall of the borrower shall be trapped in the cash trap bucket and shall be transferred to the cash sweep reserve for cash sweep at the end of each quarter and for reduction in debt, as per the mechanism defined in the sanctioned terms.

 

Additional DSRA

• The trust will be required to create an additional quarter DSRA in case the rating falls below ‘AA-‘.

 

Key terms linked to credit rating

• Spread reset for deterioration in credit rating from AA-
• Non-payment event of default applicable for Restricted Payments: Credit rating falls below A-

About the Trust

OIT is an irrevocable trust set up under the Indian Trusts Act, 1882. It is registered with the Securities and Exchange Board of India (SEBI) as an InvIT under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

 

OIT is sponsored by Oriental Structural Engineers Pvt Ltd and Oriental Tollways Pvt Ltd, and has five road projects (four toll plus one annuity). The sponsors hold ~59.2% share in OIT and sovereign funds and multilateral holdings including bodies corporate hold the remaining ~40%. Axis Trustee Services Ltd and OIT Infrastructure Management Ltd (formerly Indian Technocrat Ltd) are the trustee and investment manager, respectively.

Any other information: Not applicable

Annexure - List of Entities Consolidated

Name of entity consolidated	Extent of consolidation	Rationale for consolidation
Oriental Nagpur Betul Highway Ltd (NB)	Full	Significant financial and operational linkages
Etawah- Chakeri (Kanpur) Highway Pvt Ltd (EC)	Full	Significant financial and operational linkages
Oriental Pathways (Indore) Pvt Ltd (IK)	Full	Significant financial and operational linkages
Oriental Nagpur Bye Pass Construction Pvt Ltd (NBP)	Full	Significant financial and operational linkages
OSE Hungund Hospet Highways Pvt Ltd (HH)	Full	Significant financial and operational linkages
Biaora to Dewas Highway Private Limited (BD)	Full	Significant financial and operational linkages