Rating Rationale
July 31, 2018 | Mumbai
Reliance Infrastructure Limited
Rating downgraded to 'CRISIL D' 
 
Rating Action
Rs.125 Crore Bond CRISIL D (Downgraded from 'CRISIL BBB+/Watch Developing') 
Rs.585 Crore Non Convertible Debentures CRISIL D (Downgraded from 'CRISIL BBB+/Watch Developing')
Rs.124 Crore Non Convertible Debentures Withdrawn
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has downgraded its rating on the Rs.585 crore non-convertible debentures (NCDs) and Rs.125 crore bonds of Reliance Infrastructure Limited (RInfra) to 'CRISIL D' from 'CRISIL BBB+/Watch Developing'. CRISIL has also withdrawn its rating on the Rs.124 crore NCDs of the company on maturity of the same.

The rating downgrade reflects non-payment on due date of interest and principal obligations on CRISIL rated NCDs that were due on July 27 2018. The non-payment was disclosed by the company in its regulatory filing. The company has also intimated that it expects to make these payments in early August 2018 from the proceeds of the proposed sale of its Mumbai power generation, transmission and distribution (GTD) business to Adani Transmission Limited (ATL).

In December 2017, RInfra signed a binding agreement with ATL for sale of its Mumbai GTD business. Post the transfer, RInfra's business profile will also undergo a shift as the Mumbai GTD business contributed nearly 80% to its existing operating profits. Construction and defence businesses have been identified as RInfra's key growth areas.

The transaction of Mumbai GTD business remains subject to lenders' approvals. The company has received approvals from its shareholders, Competition Commission of India and Maharashtra Electricity Regulatory Commission (MERC). It has also received no objection certificate from 70% of the lenders.

Analytical Approach

For arriving at the ratings, CRISIL has moderately integrated its special purpose vehicle (SPVs) which are largely owned by RInfra. While RInfra is looking to exit most of its developmental projects, CRISIL believes the company will support any cost overruns or shortfall in debt servicing in these SPVs. CRISIL has not consolidated Reliance Naval and Engineering Ltd (RNEL), as no support is currently being provided beyond the equity capital already invested. CRISIL may reassess its analytical approach once the company's operations firm up.

Key Rating Drivers & Detailed Description
* Non-payment on due date of interest and principal on non-convertible debentures: RInfra has not paid on the due date interest and principal amounts on NCDs which were due for maturity on July 27, 2018. The company in a regulatory filing has intimated that it expects to make these payments in early August 2018 from the proceeds of the proposed sale of its Mumbai power business to ATL.
 
Weaknesses 
* High exposure to group companies: RInfra has significant exposure to group companies, through inter-corporate deposits and preference shares. CRISIL believes that large investments in group companies has affected RInfra's liquidity, and weakened its financial risk profile.
 
* Financial risk profile, constrained by high ratio of debt-to-EBITDA (earnings before interest, tax and depreciation, and amortisation) and below-average debt protection metrics: With a delay in deleveraging plans, the debt-to-EBITDA ratio (including regulated income as part of EBITDA) remained high at around 5.3 times as at March 31, 2018, while the adjusted interest coverage was around 1.85 times. CRISIL believes the company will reduce its debt over the medium term. However, debt protection metrics may remain constrained till actual debt reduction takes place. Hence, timely completion of its deleveraging will remain a key monitorable.
 
Strengths
* Cash flow stability on the back of regulated returns in the power distribution business in Mumbai: RInfra with its long standing presence in the service area along with regulated tariff structure drives stable cash flows from this business. The company is however looking to exit this business, and hence its future business profile will remain contingent upon its strategies in residual businesses of construction and defence.
 
* Improving revenue visibility in the engineering procurement and construction (EPC) business: After a decline in the orders from group companies in the fiscals through 2017, the company has reinstated its focus on external orders. It has substantially ramped up its order book to Rs. 26660 crore as of June 2018 from Rs 5960 crore as of March 2017 through new orders largely across transportation and power segments. A sustained build-up of the order pipeline will strengthen the revenue visibility for this business segment, and will remain a key monitorable over the medium term.
About the Company

RInfra is one of the main companies of the Reliance Anil Dhirubhai Ambani group, which includes Reliance Communications Ltd, Reliance Capital Ltd, and Reliance Power Ltd (RPower). Promoters held 48.36% stake in RInfra as on March 31, 2018.
 
The company mainly undertakes distribution of electricity in its licence area of suburban Mumbai. The EPC division executes infrastructure projects, and external projects for RPower. Power generating assets of 941 megawatt (MW), include Dahanu power station (500 MW; supplies to Mumbai), Samalkot power station (220 MW), and Goa power station (48 MW). RInfra also serves as the holding company for its portfolio of infrastructure projects, and held 43.22% in RPower as on March 31, 2018.

In January 2016, RInfra acquired management control by acquiring a 29.9% stake in Pipavav Defence and Offshore Engineering Company, which has been renamed Reliance Defence and Engineering Ltd, and later as Reliance Naval and Engineering Limited (RNEL).

Key Financial Indicators
Particulars   2018^ 2017
Revenue Rs crore 9264 9846
Profit After Tax (PAT) Rs crore 1,684 488
PAT Margin % 18.2 5.1
Adjusted Debt/Adjusted Networth Times 0.61 0.83
Interest Coverage Times 1.87 1.85
Note: The above reflect standalone CRISIL adjusted financials.
^ 2018 financials is based on audited financials reported by the company; however in the absence of detailed schedules, may not be strictly comparable to the previous year.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue Size
(Rs  Crore)
Rating Assigned 
with Outlook
INE036A07039 Bond 19-Aug-03 6.7% 19-Aug-18 125 CRISIL D
INE036A07104 Debentures 27-Jan-12 10.50% 27-Jul-18 585 CRISIL D
INE036A07146 Debentures 30-Mar-12 11.15% 30-Mar-18 124 Withdrawn
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Bond  LT  125.00
31-07-18 
CRISIL D  28-06-18  CRISIL BBB+/Watch Developing  13-11-17  CRISIL BBB+/Watch Negative  30-12-16  CRISIL A-/Watch Negative  08-12-15  CRISIL A/Watch Negative  CRISIL A+/Negative 
        03-04-18  CRISIL BBB+/Watch Developing  26-07-17  CRISIL BBB+/Watch Negative  10-10-16  CRISIL A-/Watch Negative  22-05-15  CRISIL A/Watch Negative   
        02-01-18  CRISIL BBB+/Watch Developing  26-04-17  CRISIL A-/Watch Negative  12-02-16  CRISIL A-/Watch Negative  20-03-15  CRISIL A/Watch Negative   
                    23-01-15  CRISIL A/Negative   
Non Convertible Debentures  LT  585.00
31-07-18 
CRISIL D  28-06-18  CRISIL BBB+/Watch Developing  13-11-17  CRISIL BBB+/Watch Negative  30-12-16  CRISIL A-/Watch Negative  08-12-15  CRISIL A/Watch Negative  CRISIL A+/Negative 
        03-04-18  CRISIL BBB+/Watch Developing  26-07-17  CRISIL BBB+/Watch Negative  10-10-16  CRISIL A-/Watch Negative  22-05-15  CRISIL A/Watch Negative   
        02-01-18  CRISIL BBB+/Watch Developing  26-04-17  CRISIL A-/Watch Negative  12-02-16  CRISIL A-/Watch Negative  20-03-15  CRISIL A/Watch Negative   
                    23-01-15  CRISIL A/Negative   
Fund-based Bank Facilities  LT/ST    --    --  26-07-17  Withdrawal  30-12-16  CRISIL A-/Watch Negative  08-12-15  CRISIL A/Watch Negative  CRISIL A+/Negative 
            26-04-17  CRISIL A-/Watch Negative  10-10-16  CRISIL A-/Watch Negative  22-05-15  CRISIL A/Watch Negative   
                12-02-16  CRISIL A-/Watch Negative  20-03-15  CRISIL A/Watch Negative   
                    23-01-15  CRISIL A/Negative   
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Power Distribution Utilities
Rating criteria for manufaturing and service sector companies

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