| Panchshil Techpark Private Limited | ||||
| 'CRISIL A/Stable' assigned to Non Convertible Bonds; Long term rating downgraded to 'CRISIL A/Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has downgraded its rating on bank facilities of Panchshil Techpark Private Limited (PTPL; a joint venture between Panchshil group and entities affiliated to Blackstone Inc.) to ‘CRISIL A/Stable’ from ‘CRISIL AA-/Stable’. CRISIL has also assigned its rating of ‘CRISIL A/Stable’ to PTPL’s proposed Rs.385 crore NCB programme.
The rating downgrade follows moderation in PTPL’s credit risk profile on account of substantially higher-than expected debt of ~Rs 1000 crores compared with upto ~ Rs 325 crores estimated earlier. This is primarily because PTPL is in process of availing debt of Rs 650 crores against cash flows of its flagship asset, Techpark One, in Yerwada, Pune. The proceeds will be utilized to refinance existing bank loan facility, distribute dividend and for general corporate purposes.
In addition, PTPL has also been sanctioned a construction loan of Rs 350 crores for an under-construction asset in Viman Nagar, Pune. Increase in the scope of the project has pushed up its cost, necessitating additional debt. The leasable area and project cost has increased to 1.23 msf and Rs 649 crores, from 0.95 msf and Rs 550 crores (project cost excludes land cost) respectively estimated earlier. Owing to expected increase in debt levels the company’s overall debt service coverage ratio (DSCR) is expected to moderate materially as compared to earlier estimates.
The rating continues to reflect the company’s steady cash flow for operational area, supported by healthy occupancy and clientele, its adequate debt protection metrics, and the strong operational and managerial support received from the sponsor groups. These strengths are partially offset by susceptibility to occupancy levels, volatility in interest rates, exposure to cyclicality in the real estate sector and exposure to project implementation risk. |
Analytical Approach For arriving at the rating, CRISIL has taken a standalone view on PTPL as there are no financial linkages with other group companies. |
Key Rating Drivers & Detailed Description Strengths:
Techpark One, is a commercial information technology (IT) park; spread over 6.5 acres with leasable area of 0.93 mn sqft. The park has healthy occupancy of around 95% with marquee clients such as Concentrix, IBM, JCI, Netcracker and Mastercard. Customer concentration is low with top 5 tenants occupying around 57% and 60% of the leasable area and revenue respectively. Around 30% of the leasable area will be up for renewal over the next three fiscals through 2024 however many of these agreements have built-in automatic renewal options. Vacancy by any tenant may weaken the company’s financial risk profile; however, a well-secured lease structure with lease period of 4-10 years and revenue escalation clause of 5-15% for most tenants, provide stability. Moreover, around 60% of the leased area is still under the lock-in period as of 31st October 2021.
Despite moderation of debt protection metrics due to drawdown of additional debt, they remain adequate, as reflected in debt service coverage ratio (DSCR) remaining adequate throughout tenure of the debt. Debt to lease rental ratio, however is expected to increase to ~6.0 times by the end of fiscal 2022 for operational area (excluding construction loan) with additional debt drawdown, against 1.3 times at the end of fiscal 2021. Nevertheless, it is expected to gradually decline thereafter. The Viman Nagar asset is also expected to start generating cash flows in the second half of fiscal 2023 and will support the overall debt protection metrics. Financial risk profile is also supported by requirement of a debt service reserve account (DSRA), covering three months of interest obligation.
PTPL benefits from the strong parentage of both parents, the Panchshil group and entities affiliated to Blackstone Inc. (Blackstone). The Panchshil group has strong brand presence, and has developed around 23 mn sqft of real estate space, mostly in Pune. Blackstone owns and operates one of the largest portfolios of commercial real estate in India, spread across all major micro markets. The management’s proactive approach towards asset management to ensure tenant longevity and quality also benefits the company.
Weaknesses:
Cash inflow remains susceptible to decline in occupancy levels or realisations (derived from rentals per sq ft), while cash outflow is relatively stable, except fluctuations in interest rates (as it is floating). The economic impact of any potential industry shock poses a downside risk to occupancy level as it can materially impact market rentals and demand. Although cash flow will be able to absorb the impact of fluctuations in interest rates and occupancy partially, these remain rating sensitivity factors.
Rental collection is susceptible to economic downturns, which constrain the tenant's business risk profile and, therefore, occupancy and rental rates. Emergence of competing facilities in the vicinity could also cannibalise tenants or rental rates. Moreover, the company is exposed to geographic concentration risk as it currently draws the entire revenue from one asset. Nevertheless, the under-construction Viman Nagar asset is expected to become operational in the second half of fiscal 2023 and will reduce geographic concentration risk to some extent. Any downturn in the micro markets will impact revenue.
PTPL is developing a new commercial building at Viman Nagar, Pune with leasable area of 1.23 million square feet at a cost of around Rs 649 crore (excluding land cost). The physical and financial progress were moderate as on October 31, 2021, and all major approvals have been received. The construction is progressing as per schedule and is expected to be completed by September 2022. Debt tie up has been achieved and a significant portion of required equity contribution has been brought in, thereby mitigating funding risk. Nevertheless, any significant delays in completion of project or substantial cost overruns will remain key rating monitorable. |
Liquidity: Strong The DSCR ratio is expected to remain adequate throughout the tenure of the debt. Liquidity is further supported by a DSRA covering three months of interest obligations. The company also had adequate cash and bank balance of Rs 18.0 crores as of September 30, 2021. |
Outlook: Stable CRISIL believes PTPL will continue to benefit from stable cash flow, backed by existing lease contracts with reputed companies. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company PTPL is a joint venture between the Panchshil group and Blackstone. The company operates a commercial office IT park, namely Techpark One in Yerwada, Pune. The property has been operational for around 15 years with a total leasable area of 0.93 mn sqft. PTPL is also constructing a commercial property in Viman Nagar, Pune with a total leasable area of 1.23 mnsq ft. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
^ Sub limit of Rs 10 cr as capex LC, proposed to be repaid/refinanced *Non Fund Based Working Capital Facility of Rs 10 crores; proposed to be refinanced #Sub limit of Rs 50 cr as OD facility, @Sanctioned debt of Rs 265 crores to be refinanced using proceeds from proposed term loan of Rs 265 crores |
| 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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^ Sub limit of Rs 10 cr as capex LC, proposed to be repaid/refinanced
*Non Fund Based Working Capital Facility of Rs 10 crores; proposed to be refinanced
#Sub limit of Rs 50 cr as OD facility,
@Sanctioned debt of Rs 265 crores to be refinanced using proceeds from proposed term loan of Rs 265 crores
This Annexure has been updated on 09-Nov-2021 in line with the lender-wise facility details as on 09-Nov-2021 received from the rated entity.
Criteria Details
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