| Pipeline Infrastructure Limited | ||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||
| 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 assigned its ‘CRISIL AAA/Stable’ rating to the proposed non-convertible debentures (NCDs) program of Pipeline Infrastructure Ltd (PIL; a wholly owned subsidiary of India Infrastructure Trust [India Infra], an infrastructure investment trust [InvIT]). The rating on the existing NCDs has been reaffirmed at ‘CRISIL AAA/Stable’.
PIL is in the process of issuing NCDs of Rs. 6452 crores and the proceeds will be used entirely to refinance its existing NCDs of the same amount. Therefore, overall indebtedness is not expected to increase.
PIL owns the East-West Pipeline (EWP), a 1,480-kilometre (km) cross-country pipeline, which is the sole pipeline connecting the gas-producing eastern coast to the western coast of India. It also connects key industrial clusters and is connected to the GAIL’s trunk and other pipelines. During 2019, PIL took over the EWP from East West Pipeline Ltd on a going-concern basis.
PIL had entered into a pipeline usage agreement (PUA) with RIL, whereby the latter has contracted a certain capacity of the pipeline for 20 years. The arrangement ensures steady cash flow to PIL in case the actual revenue is lower, either on account of lower gas volume or tariff. RIL will be entitled to use unutilised capacity payments made under the PUA in future. RIL will also participate in upside sharing if the actual GTA Capacity Charges received by PIL in a Financial Year are higher than the Contracted Capacity Payments paid by RIL during the Financial Year.
Therefore, the rating continues to reflect the favourable location of the pipeline, expectation of stable cash flow backed by a long-term contract with Reliance Industries Ltd (RIL; ‘CRISIL AAA/Stable/CRISIL A1+’) and a comfortable financial risk profile. These strengths are partially offset by exposure to refinancing and operations and maintenance (O&M) risks.
The financial risk profile remains robust, with debt-to-value within 70% at consolidated India Infra debt, and a comfortable debt service coverage ratio (DSCR). The rating also takes into consideration the presence of a cashflow waterfall mechanism. |
Analytical Approach CRISIL Ratings has considered the standalone credit risk profile of PIL. As the company is a 100% subsidiary of India Infra, an InvIT, CRISIL Ratings has factored in the regulatory requirements for the special purpose vehicles (SPVs) of an InvIT, including mandatory distribution of 90% of its net distributable cash (post servicing of debt) to the InvIT. Also, the consolidated borrowing of the InvIT is expected to remain within 70% of the value of its assets. |
Key Rating Drivers & Detailed Description Strengths: Favourable location of the EWP The EWP is the sole pipeline connecting the gas producing eastern coast to the western coast of India, extending from Kakinada in Andhra Pradesh to Bharuch in Gujarat. It supplies gas to key industrial clusters and to customers in the fertiliser, city gas distribution (CGD), power, iron and steel, petrochemicals and refining sectors. The pipeline is also connected to pipelines of other operators, such as GAIL and Gujarat State Petronet Ltd, for onward delivery of gas to other parts of India.
Stable cash flow from the EWP The overall cash flow benefits from the presence of a 20-year contract with RIL for contracted capacity payments and the strong credit risk profile of the counterparty. The pipeline is critical for RIL given the significant investments being undertaken for ramping up gas volume in the Krishna-Godavari (KG)-D6 fields. The arrangement will smoothen out cash flow in case the actual gas volume is lower, or tariff rates are reduced.
Cash flow generation has improved over the nine months through fiscal 2024 on account of increased production from the KG-D6 fields. While PIL transported ~23.68 million metric standard cubic metric per day (mmscmd) of gas in fiscal 2023, volume improved to ~36.93 mmscmd over the nine months through fiscal 2024. Over the medium term, volume could further ramp up, with increase in output expected from the investments undertaken by RIL and the other operators for extracting gas from the KG basin. Furthermore, revenues and thus cash flows are also supported by the pipeline being used by the other operators for parking / transporting natural gas.
Comfortable financial risk profile PIL’s cash accruals are stable and the DSCR is healthy. Debt-to-value at the consolidated India Infra level is also expected to remain within 70%, thereby restricting the debt that can be availed by PIL. The rating is also supported by financial covenants such as minimum DSCR of 1.1x stipulated for the proposed NCDs.
The company also has a well-defined waterfall payment structure, wherein a preference for payment of interest on external debentures is to be given before payments are made towards debt from InvIT or to investment manager and unitholders. This lends additional support to the financial risk profile. Furthermore, PIL will receive cash flow from RIL at the beginning of the quarter, whereas interest repayment at PIL is scheduled at the end of each quarter, providing a cushion of three months.
The investors are protected in case of delay in payments by RIL. In such a scenario, India Infra can exercise an enforcement option, which will require RIL to either purchase the NCDs for the enforcement amount or invest the amount in PIL. the proceeds will then be utilised to redeem the rated NCDs. The enforcement option will be consummated on the 158th day from the beginning of the quarter where payment from RIL has been missed.
Weaknesses: Moderate refinancing risks The existing NCD has a bullet repayment at the end of a five-year tenure i.e on March 22, 2024. The proposed NCDs are being raised to refinance the same. The proposed NCDs are likely to have maturity at the end of third, fourth and fifth year which will expose the company to moderate refinancing risk. However, a 10-year tenure for the underlying assets extending beyond the repayment tenure should help comfortably refinance the bullet repayment. Furthermore, PIL will have a call option which can be exercised within 90 days before the respective maturities of the proposed NCDs. This shall also help in optimising the refinancing in a timely manner.
PIL is expected to prudently refinance the maturing debt and maintain its healthy DSCR over the medium term.
Moderate O&M risks O&M for the pipeline will be undertaken by a contractor i.e. Pipeline Management Services Pvt. Ltd., which is a 50:50 joint venture (JV) between the RIL group and the ECI India Managers Private Ltd , the project manager of the InvIT. O&M expenses form a significant proportion of the revenue. However, any escalation in O&M expenses will be directly funded by RIL while escalation in system usage gas will be recovered from amounts payable to RIL. The expense incurred is a variable cost and is directly correlated with the quantum of gas transported through the pipeline. |
Liquidity: Superior The stable cash flows are expected to amply cover the debt obligation over the medium term, leading to a healthy DSCR (more than 2 times after excluding subordinated debt and considering only CCPs) over the tenure of the proposed debt (five years). Furthermore, the long life of the underlying assets, extending well beyond the debt tenure, should aid in refinancing bullet repayments at favourable terms. |
Outlook: Stable PIL will benefit from the long-term pipeline usage agreement executed with a strong counterparty over the medium term. An improvement in the volume of gas transported is also expected. |
Rating Sensitivity Factors Downward Factors
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About the Company PIL, a wholly owned subsidiary of India Infra, has taken over the EWP from East West Pipeline Ltd on a going-concern basis.
India Infra is promoted by an indirect subsidiary of Brookfield Asset Management (BAM): Rapid Holdings 2 Pte Ltd (sponsor). It has acquired the entire stake in PIL. Brookfield India Infrastructure Manager Pvt Ltd, is the Investment Manager. O&M contractor is a 50:50 JV of the sponsor and Reliance group. IDBI Trusteeship Services Ltd is the debenture trustee. |
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)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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