Detailed Rationale

CRISIL Ratings has revised its outlook on the long term bank facilities of six of the nine toll road special-purpose vehicles (SPVs) of Macquarie Asia Infrastructure Fund 2 (MAIF 2), namely Siddhantham Tollway Pvt Ltd, Garamore Tollway Pvt Ltd, Icchapuram Tollway Pvt Ltd, Diwantham Tollway Pvt Ltd, Ankapalli Tollway Pvt Ltd and Diwancheruvu Tollway Pvt Ltd to ‘Positive’ from ‘Stable’ and reaffirmed the ‘CRISIL AA-‘ rating. CRISIL Ratings has also revised its outlook on the long term bank facilities of the other three SPVs, namely Bamanbore Tollway Pvt Ltd, Porbandar Jetpur Tollway Pvt Ltd and Puintola Tollway Pvt Ltd (PTPL) to ‘Positive’ from ‘Stable’ and reaffirmed the ‘CRISIL AA- (CE)’ rating.

 
CRISIL Ratings has introduced 'CE' suffix for instruments having explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019.

 

The nine SPVs, referred to as the MAIF 2 Road SPVs, are part of the first toll-operate-transfer (TOT) package awarded by the National Highways Authority of India (NHAI) in March 2018.
 
The outlook revision reflects faster than expected recovery in toll collection post lockdown and expectation of continued moderate traffic growth over the medium term. Of the 9 assets, toll collection on 6 of the project stretches normalised to pre-COVID levels by June  i.e. it reached June 2019 level in June 2020 and for remaining 3 assets it normalised to July 2019 / August 2019 levels by July 2020/August 2020. In December 2020, revenue of all stretches combined was 126% of December 2019 revenue and revenue for first nine months till December 2020 was ~104% of last year’s revenue for the corresponding period despite revenue loss in April 2020 because of lock down and gradual recovery thereafter.

 

CRISIL Ratings takes into account that recovery on two of the stretches in Andhra Pradesh (AP) has been significantly higher because of ongoing augmentation of the parallel stretch. The parallel stretch is expected to become operational in Q2’FY2022 and some traffic diversion is expected thereafter. Despite this, given the strong traffic potential of the stretches the MAIF 2 Road SPVs are expected to register toll revenue growth of 8-10% over the medium term.

 

Furthermore, the MAIF 2 Road SPVs benefit from healthy capitalisation where project cost was funded in debt to equity of 55:45. This along with long tenor of the debt of 20 years and healthy toll collections have resulted in healthy average consolidated debt service coverage ratio (DSCR) throughout the tenure of the debt. Additionally, debt service reserve account (DSRA) of Rs 247 crore which is equivalent to six months debt servicing obligation is being maintained in a fixed deposit (FD).

 

The rating continues to reflect healthy debt protection metrics backed by strong traffic potential of the stretches, healthy capital structure, strong and experienced sponsor, strong cash and bank balance, adequate liquidity support through 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 higher-than-expected O&M expenses owing to latent defects.

The 'CE' suffix indicates credit enhancement by way of the financing agreement which includes co-obligor structure and cross default clauses between each of the nine MAIF 2 Road SPVs, allowing for availability of project cash flow post debt servicing in individual SPVs for debt servicing of other SPVs in the group.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of the nine MAIF 2 Road SPVs in line with CRISIL Ratings’ criteria for rating entities in homogeneous groups and equated the rating of the individual SPVs to that of the group. All the nine MAIF 2 Road SPVs are in the same business of operating and maintaining toll roads, have common management and are critical to the group. Each of the SPVs act as a co-obligor to the other. Post debt servicing in each SPV, excess cash flow is available for debt servicing of all other SPVs. However, ‘CE’ suffix is assigned to those entities whose credit has been enhanced as a result of the co-obligor structure.

 

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

Key Rating Drivers & Detailed Description

Strengths

• Strong financial risk profile with robust DSCR supported by favourable location of stretches and a healthy capital structure

Toll collection across nine stretches was Rs 746 crore in fiscal 2020 - traffic was impacted  on account of nationwide lockdown in the last week of March 2020, extended monsoon and lower revenue on 2 stretches in Gujarat (Garamore Tollway Pvt Ltd and Bamanbore Tollway Pvt Ltd) due to the National Green Tribunal (NGT) implementing ban on coal based power plant.

 

Despite national wide lockdown and restrictions imposed on movement in order to contain the spread of Covid-19, toll collection in 6 of the project stretches normalised and reached pre-Covid levels by June i.e. it reached June 2019 level by June 2020 and for remaining 3 assets it normalised to July 2019 / August 2019 level by July 2020 / August 2020. Toll across all 9 stretches combined for first nine months till December 2020 was ~104% of last year’s collection for the same period despite revenue loss in April 2020 because of lock down and gradual recovery of traffic thereafter.  

 

The increase in revenue in fiscal 2021 is supported by significant increase in traffic volume in 2 stretches in AP {Siddhantham Tollway Pvt Ltd (STPL) and Diwantham Tollway Pvt Ltd (DTPL)} due to diversion of traffic from the competing road which is currently undergoing augmentation. Further, normalisation of traffic in 2 stretches in Gujarat (Garamore Tollway Pvt Ltd and Bamanbore Tollway Pvt Ltd) which was impacted in fiscal 2020 due to NGT order on usage of Gas instead of coal for furnace has also supported recovery in fiscal 2021. Revenue for fiscal 2021 is estimated to grow by ~8-9%.

 

Augmentation of the competing stretch to STPL and DTPL is expected to complete in Q2’FY2022 and normalisation along with some traffic diversion is expected on these 2 stretches in fiscal 2022. However, given the strong traffic potential of the 9 stretches, annual toll revenue growth is expected to be 8-10% over the medium term. Any significant and sustained impact on traffic leading to lower than expected revenue will remain a rating sensitivity factor.

 

Around 75% 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. The project stretches witness traffic from the industrial centres in Visakhapatnam, East-West Godavari, Srikakulam, and Ganjam districts, and provide connectivity to the major port in Visakhapatnam and other ports in Kakinada, Krishnapatnam, and Gangavaram. The project stretches in Gujarat provide connectivity to the Kandla, Mundra, and Porbandar ports, and to large industrial districts such as Morbi and Rajkot, in the state.

 

Hence, the group benefits from strong traffic potential. Also, annual toll rate escalation has a 3% fixed component and is also linked to 40% of annual change in the Wholesale Price Index (WPI), which limits complete dependence on WPI, thereby supporting revenue.

 

The MAIF 2 Road SPVs have healthy average consolidated DSCR throughout the tenure of the debt. DSCR is expected to be moderate in the initial years of operations, and improve over the medium term backed by healthy revenue growth. Furthermore, DSCR is supported by a healthy capital structure. Total cost of around Rs 11,000 crore (includes concession fee payable to NHAI and initial capital expenditure) is funded through debt of Rs 5,000 crore and balance from sponsor's fund (mix of equity and subordinate debt).

 

• SPVs to act as co-obligors for each other; tight escrow mechanism with a well-defined payment waterfall and creation of DSRA and MMRA to support the structure

With the presence of a co-obligor structure, surplus cash flow after debt servicing in any SPV will be available to fund shortfall in other SPVs prior to due date.

 

Furthermore, the waterfall mechanism ensures that toll collection will be escrowed and will be used to meet the principal and interest payments post the payment of taxes, statutory dues, and O&M expenses.  Also, DSRA (currently maintained in the form of FD) equivalent to 6 month debt servicing obligation will be maintained throughout the tenure of the loan. The company plans to raise additional debt of around Rs 600 crore (already tied up) to fund the first major maintenance.  The consolidated DSCR will be checked for the immediate previous quarter and payment to the shareholder will be made if consolidated DSCR is not less than 1.10 times in the immediate previous financial quarter, also subject to meeting other restricted payment conditions stipulated in the facility agreement. There is about Rs 197 crore cash surplus as of January 2021which can be distributed to the shareholders. However, it is still in the system.

 

• Strong and experienced sponsor

MAIF 2 is an infrastructure fund managed by Macquarie Infrastructure and Real Assets (MIRA), which is the worlds' 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 as well as through its investee companies over last 15 years.

 

SPVs outsources its Operation and Maintenance activities to specialized and experienced contractors. Ashoka Buildcon Ltd is currently carrying out the tolling operation and the initial improvement works for the projects.  Ability of the management to maintain the stretch in the budgeted cost will remain a rating sensitivity factor.

 

Weaknesses

• Susceptibility of toll revenue to volatility in traffic or increased maintenance cost as a result of any latent defect

Toll collection, the single source of revenue, is exposed to volatility because of toll leakages, competing routes, fluctuation in WPI-linked inflation, seasonal variations in vehicular traffic, and economic downturns. Also, given that these stretches have been operational for many years now, any latent defect can result in higher-than-anticipated maintenance cost thereby impacting the debt protection metrics.

 

Any change in government policy (such as the demonetisation of high-value currency notes in November 2016) or unforeseen circumstances such as Covid-19 in fiscal 2021 can adversely impact cash flow and debt protection metrics.

 

Further, given the term loan is at 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 group’s liquidity is strong, with healthy DSCR expected to be maintained throughout the tenure of the loan. Toll collection stood at Rs 746 crore against debt obligation of Rs 483 crore in fiscal 2020. Toll revenue for fiscal 2021, should suffice to cover debt obligation of about Rs 457 crore. Further, DSRA equivalent to six months debt servicing obligation will be maintained throughout the tenure of the debt. DSRA of Rs 247 crore is maintained in FD as of January 2021. Apart from DSRA, there is also cash of Rs 280 crore in the escrow account of which Rs 197 crore is surplus that has not been repatriated to the shareholders as yet.

Outlook: Positive

CRISIL Ratings believes the group will continue to generate healthy toll revenue over the medium term, backed by good traffic potential on the project stretches. Average consolidated DSCR is expected to remain healthy for the tenor of loan.

Rating Sensitivity factors

Upward Factors:

• Sustained consolidated toll revenue growth of ~8% on annual basis
• Lower than expected operating cost resulting in improvement in consolidated DSCR

 

Downward Factors:

• Flattish trend in consolidated revenues on sustained basis
• Higher than expected O&M cost or additional debt contracted impacting the consolidated DSCR
• Non adherence to structure

Adequacy of credit enhancement structure

The rating on the bank facility of PTPL is based on the strength of the co-obligor structure detailed in the Inter Company Guarantee Agreement between each of the nine MAIF 2 Road SPVs (borrowers). Each of the borrowers, unconditionally and irrevocably guarantee that they shall make available funds (out of the monies available in their surplus and reserve accounts) for servicing shortfall in external debt servicing in any of the other borrowers in accordance with the Inter Company Guarantee Agreement.

 

The borrower’s agent (Diwancheruvu Tollway Pvt Ltd) examines the funds lying in each of the debt service accounts of each of the borrowers prior to the date of debt servicing. In the event, the required balance is not maintained with respect to any of the borrower(s) (deficit borrower[s]), the borrowers agent issues the surplus funding notice requiring the surplus borrower(s) to advance funds to the deficit borrower(s). Upon receipt of this notice, each of the surplus borrower(s) identified in the surplus funding notice will advance the required funds to the deficit borrower(s) prior to the date of debt servicing.

Unsupported ratings: CRISIL A

CRISIL has introduced 'CE' suffix for instruments having explicit ‘credit enhancement’ feature in compliance with the Securities and Exchange Board of India circular dated June 13, 2019.

Key drivers for unsupported ratings

The unsupported rating on the bank loan facility of PTPL does not factor in credit enhancement arising from the co-obligor structure (with cross default clauses across nine MAIF 2 Road SPVs) that is documented in the financing agreement.  The unsupported rating takes into account PTPL’s cash flow contribution to the group as well as the support PTPL will derive from the group on account of MAIF 2's intent to operate these SPVs as a homogenous group.

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 Orissa, and is part of the nine-project TOT bundle awarded by NHAI in March 2018. The term loan from Yes bank was taken-over by SBI on 30th June 2020. Further, escrow and DSRA accounts are in process of being shifted from Yes Bank to SBI (5 SPVs) and ICICI (4 SPVs). The group however continue to have sanction of MMR facility of Rs 600 crore from Yes Bank.

 

About Macquarie Asia Infrastructure Fund 2

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

Key Financial Indicators

Financials as on / for the period ended March 31		2020	2019
Revenue*	Rs crore	202	56
Profit after tax	Rs crore	(45)	(26)
PAT margin	%	(22.32)	(45.45)
Adjusted debt/adjusted networth^	Times	7.72	8.17
Interest coverage^^	Times	0.94	0.83

^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 55.99 crores (PY: Rs30.51cr) and balance is construction income recognised as per IND AS accounting standards, wherein an equal amount is recognised as construction revenue and construction expense

List of covenants

The material covenants of the intercompany guarantee agreement are as follows:

 

• The guarantee is an irrevocable and unconditional guarantee which will extend with respect to each borrower  (to the extent of amounts available in the surplus and reserve accounts of the surplus borrower(s))
• The guarantee to continue till the final settlement date of the external debt facilities in each of the borrowers

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs Crore)	Complexity Level	Rating assigned with outlook
NA	Term Loan	NA	NA	Aug-2038	396.7	NA	CRISIL AA- (CE)/Positive

 

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Siddhantham Tollway Pvt Ltd	Full	Co-obligor structure and cross-default clause amongst all SPVs
Garamore Tollway Pvt Ltd	Full
Icchapuram Tollway Pvt Ltd	Full
Diwantham Tollway Pvt Ltd	Full
Ankapalli Tollway Pvt Ltd	Full
Diwancheruvu Tollway Pvt Ltd	Full
Bamanbore Tollway Pvt Ltd	Full
Porbandar Jetpur Tollway Pvt Ltd	Full
Puintola Tollway Pvt Ltd	Full