| Summit Digitel Infrastructure Limited | ||||||||||
| Rating reaffirmed at 'CRISIL AAA/Stable' | ||||||||||
| Rating Action | ||||||||||
| ||||||||||
| ||||||||||
| 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 reaffirmed its ‘CRISIL AAA/Stable’ rating on the long-term bank facilities and debt instruments of Summit Digitel Infrastructure Limited (SDIL). The rating on non-convertible debentures of Rs 11,836 crore have been withdrawn at company's request and receipt of required documentation as the same have been repaid. This is in line with CRISIL Ratings' rating withdrawal policy.
The rating continues to reflect the company’s strategic importance to, and strong business linkages with, Reliance Jio Infocomm Ltd (RJIL; ‘CRISIL AAA/Stable/CRISIL A1+’); the rating also factors in the strong financial risk profile with comfortable debt service coverage ratio (DSCR). These strengths are partially offset by susceptibility to revenue and counterparty risks related to external tenants.
The company has assured cash flow because of its long-term master service agreement (MSA) with RJIL and faces limited downside risks to profitability given the fixed-price terms of its project execution and operations and maintenance (O&M) agreements.
Its tower assets are critical for the operations of RJIL. As an anchor tenant, RJIL had entered into an agreement to contract capacity on single-tenancy basis for 30 years, providing strong cash flow visibility to SDIL.
Rising data usage with launch of 5G services will create more demand for towers connected through optical fibres (fiberised backhaul) over the medium term. The company has a large share of fiberised towers and could therefore attract demand from third parties as well. SDIL has recently made agreements with third party tenancies as well, which would also support DSCR.
The company plans to increase its tower count to ~1,99,451 over the next two years from 1,74,451 as on March 31, 2023. CRISIL Ratings understands that RJIL will continue to be the anchor tenant on these additional towers as well.
Total external debt for SDIL stood at ~Rs 29,268 crore (excludes mark to market on external commercial borrowings exposure) as on March 31, 2023, including term loans from banks, foreign currency bonds and non-convertible debentures (NCDs). External debt could rise further by Rs 9,000-Rs 10,000 crore because of the planned capital expenditure for increasing tower count. However, the DSCR is expected to remain comfortable.
Moreover, CRISIL Ratings also understands that current external debt cap of ~Rs 30,008 crore will also get revised because of increase in tower count. This would remain a key monitorable. |
Analytical Approach CRISIL Ratings has considered the standalone credit risk profile of SDIL and has factored in the regulatory requirements for the special-purpose vehicles (SPVs) of infrastructure investment trusts (InvITs). |
Key Rating Drivers & Detailed Description Strengths: Strong business linkages with, and strategic importance to, RJIL The strategic importance of SDIL is indicated by RJIL being the anchor tenant for all towers of the SPV, which comprise a substantial share of the total tenancies of the company. Also, rapid consumption of high-speed data will increase demand for towers with fibre backhaul. Given that SDIL has a significantly higher share of towers with fiberised backhaul vis-à-vis the industry, RJIL derives greater competitive advantage.
Moreover, RJIL has strong economic incentive from third-party tenancies, which enhances the strategic importance of the SPV. Furthermore, the O&M and project execution partner (Jio Infrastructure Management Services Ltd) being a Reliance group entity underscores the business linkages.
Healthy cash flow visibility and limited downside risks to profitability The long-term MSA with RJIL ensures stable revenue for SDIL, with upside to revenue coming from contracting third-party tenancies. SDIL has also entered into a contract with third party tenants for providing tower infrastructure to the latter’s networks and is adding tenancies, which will also aid cash flow.
Fixed tower-usage fees and O&M costs and passthrough of any increase in site rentals to tenants (including RJIL) protect profitability. Additionally, project execution risks are borne by the contractor and towers are transferred to the company only after completion at a fixed price.
Comfortable financial risk profile Financial risk profile is supported by stable cash accrual and comfortable DSCR for external debt (including NCDs and excluding the InvIT loan), based on revenue from just the anchor tenant. DSCR is also supported by the long life of the asset beyond the tenor of the existing external debt and upside potential to the cash flows from third party tenancies. While SDIL is also exposed to refinancing risks, this is mitigated through stable cash flows and long-term MSA with anchor tenant.
High proportion of fixed rate borrowings and maintenance of superior liquidity also aid financial risk profile.
Investment by the InvIT will be subordinate to external debt and will not have a definite schedule for principal repayment or interest payments.
Weakness: Susceptibility to revenue and counterparty risks related to external tenants Limited players in the Indian telecommunication (telecom) industry may constrain third-party tenancies. Moreover, the telecom sector is susceptible to technological changes and competition, which may impact cash accrual and leverage ratio of telecom companies. Thus, counterparty risks related to external tenants persist. Nevertheless, SDIL has a strong DSCR for its rated external debt based on revenue from just the anchor tenant. |
Outlook: Stable SDIL will continue to benefit from its steady cash flow backed by the long-term tower use agreement with RJIL. |
Rating Sensitivity factors Downward factors
|
About the Company SDIL is an SPV formed by the transfer of tower assets and a portion of liabilities by RJIL. In December 2019, Reliance Industrial Investments and Holdings Ltd entered into a binding agreement with Brookfield Asset Management Inc for investment of Rs 25,215 crore by the latter in the units issued by the Data Infrastructure Trust (DIT), after which DIT holds 100% stake in SDIL. |
Key Financial Indicators
NM: Not meaningful because the figures are negative The table reflects CRISIL Ratings-adjusted figures, which may not match with those reported by the company *Interest coverage ratio computation includes interest accrued on InvIT Loan. Any payment of interest on the InvIT loan is subordinated to the senior lenders’ interest and subject to availability of surplus cash flows. Excluding the interest on the parent loan, interest coverage ratio will be 2.0 times and 2.4 times, respectively. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#yet to be issued
Annexure – Details of Ratings Withdrawn
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
|
Criteria Details
|