Detailed Rationale

CRISIL Ratings’ rating on the long-term bank facilities of Puintola Tollway Private Limited (PTPL) continues to reflect the healthy debt protection metrics of the special purpose vehicles (SPVs) backed by the moderate traffic potential of the project stretches and healthy capital structure. The ratings also factor in the strong sponsor, large surplus cash and bank balance, adequate liquidity support through debt service reserve account (DSRA) and the presence of a co-obligor structure. These strengths are partially offset by susceptibility of toll revenue to volatility in traffic volume and the risk of higher-than-expected operations and maintenance (O&M) expenses because of latent defects.

 

The SPV is part of the first toll-operate-transfer (TOT) package awarded by the National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable) in March 2018 to Macquarie Asia Infrastructure Fund 2 (MAIF 2). The rating action follows re-evaluation of the criticality of the SPV to the TOT bundle of nine SPVs, referred to as the MAIF 2 road SPVs. Each of the SPVs acts as a co-obligor to the other SPVs in addition to the cross default (i.e., default on any conditions in one SPV leads to default in all other SPVs). Testing of DSRA of all SPVs is done 10 business days prior to the due date. Post debt servicing in each SPV, the excess cash flow is available for debt servicing of the other SPVs. Previously, the entity was assessed on a standalone basis and ‘CE’ suffix was assigned as its credit profile was enhanced as a result of the co-obligor structure. 

 

The toll revenue was flat in fiscal 2022 as compared to the previous year, primarily due to significant decrease in traffic volume on two stretches in Andhra Pradesh (AP), Siddhantham Tollway Pvt. Ltd (STPL) and Diwantham Tollway Pvt. Ltd (DTPL) as traffic reverted to normalised level. Traffic was significantly higher in fiscal 2021 on these stretches due to positive diversion from a competing road which was under augmentation. Toll revenue growth is expected to remain healthy in the near term with higher toll rates (consequent to high Wholesale Price Index [WPI] inflation) and moderate traffic potential of the nine stretches, which would keep the average DSCR healthy.

 

The nine stretches have been operational for several years. The major maintenance (MM) cost and phasing have been updated based on the technical test reports. The MM activity has been preponed to the current fiscal against initial plan of fiscal 2025. The first MM cost has increased to Rs 976 crore from previous estimate of Rs 600 crore. The increase in the first MM cost is due to recent increase in bitumen rates, GST rate hike from 12% to 18% and MM to be undertaken in three stretches (which was not envisaged earlier) due to delay in capacity augmentation in these stretches. The lenders have appointed an independent engineer (IE) to assess the planned MM. CRISIL Ratings would continue to monitor the quality of project stretches and progress on MM.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of the nine MAIF 2 road SPVs in line with its criteria for rating entities in homogeneous groups and equated the rating of the individual SPVs to that of the group. All the nine SPVs are in the same business of operating and maintaining toll roads, are under the same management and are critical to the group. Each SPV acts as a co-obligor to the others. The approach also factors in presence of cross default amongst SPVs, wherein a default in any one SPV would mean a default in all other SPVs.

 

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:

Strong financial risk profile with healthy debt service coverage ratio (DSCR)

Around 70% of the revenue of the MAIF 2 road SPVs is from six stretches in AP, which are part of National Highway (NH) 5 of the Golden Quadrilateral connecting Kolkata and Chennai and have high upside potential for traffic, given the presence of ports, industrial clusters, and consumption centres in their periphery. These stretches get traffic from the industrial centres in Visakhapatnam, East-West Godavari, Srikakulam and Ganjam districts, and provide connectivity to major port in Visakhapatnam and other ports in Kakinada, Krishnapatnam and Gangavaram. The remaining three project stretches are in Gujarat and they provide connectivity to the Kandla, Mundra, and Porbandar ports, and to large industrial districts such as Morbi and Rajkot.

 

Given this, the project stretches have shown resilience during the pandemic. The revenue was flat in fiscal 2022 as compared to the previous year, primarily due to significant decrease in traffic volume on two stretches (STPL and DTPL) in AP as traffic reverted to normalised level. Traffic was significantly higher in fiscal 2021 on these stretches due to positive diversion from a competing road which was under augmentation. While the impact of second wave on traffic was limited, traffic volume and consequently toll revenue was affected in the second half of fiscal 2022, due to heavy and prolonged monsoons, supply chain disruptions and a modest impact of third wave. Toll revenue growth is expected to remain healthy in the near term with higher toll rates (consequent to high WPI inflation) and moderate traffic potential of the nine stretches, which would keep the average DSCR healthy. The annual toll rate revision has a 3% fixed component and is linked to 40% of the annual change in the WPI.

 

The MAIF 2 road SPVs benefit from healthy capitalisation as the project cost was funded through debt and equity in a ratio of 45:55. Total cost of around Rs 11,000 crore (including concession fee payable to NHAI and initial capital expenditure) was funded through debt of Rs 5,000 crore and sponsor's fund (equity and subordinate debt). The group raised Rs 200 crore in fiscal 2022 across four SPVs which was utilised to pay the sponsors in line with the initial facility agreement. Despite this, the capital structure is expected to remain comfortable with debt to equity ratio of around 0.9 time.

 

Healthy capitalisation, long tenure of the debt of 20 years and adequate toll collection have resulted in sound consolidated DSCR throughout the tenure of the debt. While the DSCR is expected to be moderate in the initial years of operations, it should improve over the medium term backed by healthy revenue growth.

 

Co-obligor structure; tight escrow mechanism with a well-defined payment waterfall

Surplus cash flow after debt servicing in any SPV will be available to fund shortfall in other SPVs, given the co-obligor structure. Furthermore, the waterfall mechanism ensures that toll collection will be escrowed and used to meet the principal and interest obligations post the payment of taxes, statutory dues and O&M expenses. Also, DSRA (in the form of fixed deposit) equivalent to six months of servicing obligation will be maintained throughout the tenure of the loan. Further, the group has maintained major maintenance reserve account (MMRA) of Rs 87 crore as of May 26, 2022. The group plans to raise debt of around Rs 976 crore to fund the first MM.  

 

The consolidated DSCR will be checked for the immediate previous quarter and payment to shareholders will be made if the consolidated DSCR is not less than 1.10 times in the immediate previous financial quarter and subject to meeting other restricted payment conditions stipulated in the facility agreement.

 

Strong and experienced sponsor

MAIF 2 is an infrastructure fund managed by Macquarie Infrastructure and Real Assets (MIRA), which is the world's largest infrastructure asset manager and the first fund manager to invest in controlling stakes of road assets in India. MIRA-managed funds have successfully operated 12 BOT (build-operate-transfer)-toll, 1 annuity and 8 hybrid annuity projects in the country directly or through investee companies over the past 15 years. The SPVs outsource O&M activities to specialised and experienced contractors. Ability of the management to maintain the project stretches in the budgeted cost will remain a rating sensitivity factor.

 

Weakness:

Higher maintenance cost leading to higher debt

The nine stretches have been operational for several years. The MM cost and phasing have been updated based on the technical test reports. The MM activity has been preponed to the current fiscal against initial plan of fiscal 2025. The first MM cost has increased to Rs 976 crore from previous estimate of Rs 600 crore. The increase in the first MM cost is due to recent increase in bitumen rates, GST rate hike from 12% to 18% and first MM to be undertaken in three stretches (which was not envisaged earlier) due to delay in capacity augmentation in these stretches. The lenders have appointed an IE to assess the planned MM. CRISIL Ratings would continue to monitor the quality of project stretches and progress on MM.

 

The group plans to raise debt of around Rs 976 crore to fund the first MM. While the cash flows will be able absorb the impact of higher MM for the current cycle,  elevated maintenance cost may impact the debt protection metrics and will remain key rating sensitivity factors.

 

Susceptibility of toll revenue to volatility in traffic or interest rates

Toll collection, the single source of revenue, is susceptible to volatility because of toll leakages, competing routes, fluctuations in WPI-linked inflation, seasonal variations in vehicular traffic and economic downturns. Also, any change in government policy (such as the demonetisation of high-value currency notes in November 2016) or unforeseen circumstances such as Covid-19 can adversely impact cash flow and debt protection metrics.

 

The term loan has a floating interest rate, it is subject to volatility as per the changes in economic scenario and may impact DSCR levels in case of unfavourable movement on interest rate.

Liquidity: Strong

The MAIF 2 Road SPVs have strong liquidity, with DSCR expected to be healthy throughout the tenure of the loan. Toll collection stood at Rs 816 crore against debt obligation of Rs 405 crore in fiscal 2022. The toll revenue growth for fiscal 2023 is expected to be healthy given the higher toll rates since April 2022, and would be adequate to cover debt obligation of Rs 403 crore in this fiscal. DSRA equivalent to six months of debt obligation will be maintained throughout the tenure of the debt. DSRA of Rs 248 crore was maintained in a fixed deposit as of May 26, 2022. Unencumbered cash and bank balances of Rs 312 crore as of May 26, 2022 (of which Rs 174 crore is surplus that has not been repatriated to the shareholders as yet) will also support liquidity.

Outlook: Stable

CRISIL Ratings believes the MAIF 2 Road SPVs will continue to generate healthy toll revenue over the medium term, backed by moderate traffic potential on the project stretches. The consolidated DSCR is expected to remain healthy over the tenure of the loan.

Rating Sensitivity Factors

Upward factors:

• Consolidated toll revenue growth of ~12% on a sustained annual basis along with cost efficient maintenance resulting in materially improved DSCR
• Significant improvement in quality of stretches providing visibility of optimal operating costs through the life of assets

 

Downward factors:

• Deterioration in quality of project stretches leading to higher-than-expected outflows towards maintenance or material adverse observations from authority
• Higher-than-expected O&M cost or additional debt weakening the consolidated DSCR
• Lower-than-expected toll revenue by more than 10% on sustained basis
• Non adherence to structure

About the Company

Incorporated in March 2018, PTPL is a special purpose vehicle promoted by MAIF 2. It operates a 64.4-kilometre stretch on NH-5 in Andhra Pradesh and Odisha connecting Puintola to Icchapuram and is part of GQ. This stretch is also one of the part of the nine-project TOT bundle awarded by NHAI in March 2018.

 

The term loan provided to the MAIF 2 Road SPVs by Yes Bank was taken over by the State Bank of India (SBI) on June 30, 2020. Escrow and DSRA accounts maintained with Yes Bank were shifted to SBI (5 SPVs) and ICICI Bank (4 SPVs). Further, ICICI Bank’s exposure was taken over by HDFC Bank in October 2021. While escrow and DSRA accounts are being shifted from ICICI Bank (4 SPVs) to HDFC Bank, the MMR facility of Rs 600 crore continues from Yes Bank.

 

About MAIF 2

MAIF 2 is a 10-year, closed-end fund targeting infrastructure investments in Greater China, India, Korea, Japan, Australia, New Zealand, and South East Asia.

Key Financial Indicators

Financials as on/for the period ended March 31	Unit	2022	2021
Revenue*	Rs.Crore	99	95
Profit After Tax (PAT)	Rs.Crore	(62)	(48)
PAT Margin	%	(62.9)	(50.7)
Adjusted debt/adjusted networth^	Times	(35.97)	18.21
Interest coverage^^	Times	0.41	1.16

^Shareholder optionally convertible debentures (OCDs) have been treated as debt

^^Interest coverage does not include interest on shareholder OCDs

*Revenue includes toll collection of Rs 72.76 crore (PY: Rs 63.13 crore) and balance is construction income/utility shifting income recognised as per IND AS accounting standards, wherein an equal amount is recognised as construction revenue and construction expense

Any other information: Not applicable