Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facility of Welspun Aunta-Simaria Project Private Limited (WASPPL; a hybrid annuity project of Welspun Enterprises Limited [WEL; rated ‘CRISIL AA-/Stable/CRISIL A1+’] to 'CRISIL A/Stable' from ‘CRISIL A-/Stable’.

 

The upgrade in rating factors receipt of another approval from National Highways Authority of India (NHAI; rated CRISIL AAA/Stable) for the extension of time (EOT) for the completion of the project. The revised scheduled operational date (SCOD) is October 29, 2024. As of November 30, 2023, physical and financial progress of the WASPPL project was ~69% and 76% (~Rs 782 crore) respectively and the management expects to complete the entire project within the revised timelines. Physical progress and timely completion of project within the revised timelines will remain a key rating sensitivity factor.

 

In terms of funding the project, the company has received three milestone payments (in full) out of five from NHAI totalling to ~Rs. 428 crores (net of mobilisation advance) (out of total Rs. 540 crores [including indexation]). The sponsor has infused ~Rs 180 crore in the form of equity, Compulsorily Convertible Debentures (CCD) and Optionally Convertible Debentures (OCD) till November 2023, and has drawn a debt of Rs. 400 crores till November 2023 (total sanctioned debt is ~Rs. 648 crores).

 

The rating continues to factor in the inherent benefits of the hybrid annuity model (HAM), such as provisions for change in scope or delinking of unavailable land. The ratings also reflect low funding risk, and operational and financial support from the sponsor, WEL. These strengths are partially offset by exposure to implementation risks, given the complexity of the project, under-construction phase of the project and significant delays.

Analytical Approach

CRISIL Ratings has notched up the standalone rating of WASPPL based on expected support from its parent, WEL, on an ongoing basis and in the event of distress.

Key Rating Drivers & Detailed Description

Strengths:

• Inherent benefits of HAM: The project enjoys the inherent benefits of HAM, including provisional commercial operation date (PCOD) to be issued on completion of construction on the land made available up to 255 days from the appointed date, allowing full annuities to be paid as if all works of the project have been completed. Annuities are paid in proportion to the work completed by PCOD. The concessionaire will be required to complete construction on the remaining land, whenever it is made available following PCOD.

 

The HAM concession agreement allows change in scope on land not available within 255 days of the appointed date, reducing completion cost and corresponding annuity and operation and maintenance (O&M) payments, and facilitating timely completion of the project. Other benefits include indexation done to the bid project cost (BPC) and O&M cost and interest payments on residual annuity payments in the operational period.

 

• Low funding risk: Bid Project cost of Rs 1,161 crore (inclusive of Goods and Services Tax [GST]) is being funded through NHAI grant, debt and equity in the ratio of 40:48:12, respectively. Funding risk is mitigated because the company has already tied up with banks for loans. Debt of Rs 400 crore has been drawn down as on November 30, 2023, from total sanctioned debt of ~Rs 648 crore. The project has achieved ~76% financial progress as of November 2023, majority of which was funded through sponsor funds and NHAI grants. The sponsor had brought in entire equity requirement of ~Rs 180 crore of equity/CCD/OCD infusion as of November 2023, and ~Rs 428 crores was received from NHAI (corresponding to three payment milestones) out of a total grant of Rs 540 crores (including indexation) till November 2023. Interest bearing mobilisation advance of Rs 116 crore was received out of which only ~Rs 12 crore is outstanding as on December 2023. Furthermore, WEL has provided an undertaking for financial support for cost overruns and cash flow mismatches during the construction and operational phases.

 

• Operational and financial support from the sponsor: WEL is the sponsor of the project and has provided an undertaking to provide for any cost overrun during construction stage and financial support for any cash flow mismatches for debt servicing and any increase in O&M expenses beyond estimated amount

 

Weakness:

• Exposure to implementation risk: The project has achieved ~69% physical progress as of November 2023. It has witnessed delays because of a multitude of issues including land acquisition, excessive rains and floods leading to ruination of work, cyclones and rise in water level of the Ganges, technical issues with respect to the project design and subsequent change of scope (CoS), law and order problems and Covid-19 related disruptions. WASPPL is also exposed to implementation risk given the complexity of the project, which involves construction of 1.865-km, six-lane bridge over the Ganges and 6.6-km of approach roads. This risk is mitigated by the fixed-price, fixed-time contract with, and strong project execution capability of, the EPC contractor and sponsor. Because of the complexity in bridge construction, WEL has subcontracted the work to S P Singla Constructions Pvt Ltd (rated ‘CRISIL A+/Watch Developing || CRISIL A1/Watch Developing’), which has built ~350 bridges across India. While the company has received EOT upto October 29, 2024 from NHAI, and management expects to complete the project work within the scheduled timelines, progress of construction hereafter and timely completion will be a key rating sensitivity factor.

Liquidity: Adequate

The project is under construction and the first repayment is scheduled nine months post achieving COD. Funding risk is low because the company has tied up with banks for loans, and the sponsor have brought in their entire equity commitment. WASPPL has received three construction grants out of five grant payments from NHAI upon completing 50% physical progress of the stretch in August 2023. Furthermore, WEL has provided an undertaking for financial support in case of cost overrun and cash flow mismatch during the construction and operational phases.

 

Liquidity will remain healthy as the project will receive semi-annual annuities (along with interest) and O&M payout from NHAI. The debt service coverage ratio (DSCR) is expected above 1 time throughout the tenure of the loan. Furthermore, the company has to maintain a debt service reserve account (DSRA) equivalent to six months of principal and interest obligations upon receipt of first annuity. Also, WEL will cover any increase in O&M expenses beyond the NHAI payout during the operational phase.

Outlook: Stable

WASPPL will benefit from the receipt of EOT, presence of fixed-price EPC contract with WEL and sustained operational and financial support from the sponsor.

Rating Sensitivity factors

Upward factors:

• Substantial increase in physical progress of the project and receipt of PCOD/COD
• Completion of project within the revised schedule of October 29, 2024
• Improvement in credit profile of the sponsor, WEL
• Timely receipt of annuities and creation of DSRA

 

Downward factors:

• Significant delay or anticipation of delay in completion of project beyond October 29, 2024
• Cost overrun leading to higher-than-expected debt weakening the financial risk profile
• Weakening of the credit risk profile of the sponsor, WEL

About the Company

WASPPL was incorporated on October 13, 2017, as a special-purpose vehicle to undertake six-laning of the Aunta-Simaria (Ganga Bridge with approach roads) section of national highway (NH) 31 from 197.9 km to 206.05 km in Bihar on design, build, operate and transfer (DBOT) basis. The project was awarded to WASPPL by NHAI and concession agreement was signed in November 2017. It received appointed date in August 2018.

 

The Bid Project Cost is Rs 1,161 crore (inclusive of GST). The Bid Project Cost and O&M bid cost are adjusted for price index variation between the bid date and the milestone date to arrive at the completion cost. The project will be funded by NHAI to the extent of 40% of completion cost during the construction phase, while the balance 60% will be paid as annuity during the operational phase.

 

The concession was granted to WASPPL for 18.5 years (including construction period of 3.5 years) and based on semi-annual annuity payment. The company has received a total EOT of 815 days from NHAI on account of revised work programme (change of scope), which now includes construction of road under bridge (RUB) - 1, RUB-2, road over bridge (ROB) - 2 and all other activities required for the completion of the overall project. Hence, the revised completion date for the project is October 29, 2024.

 

WASPPL has received significant right-of-way (ROW) and major approvals, which are critical during the construction phase of the project. 100% of the required ROW (with 3H completion) has been obtained. Other minor approvals such as those required for utility shifting will be obtained as the construction progresses.

Key Financial Indicators*

Financials as on / for the period ended March 31	Unit	2023	2022
Operating Income	Rs crore	NM	NM
Profit after tax (PAT)	Rs crore	NM	NM
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	NM	NM
Adjusted Interest coverage	Times	NM	NM

*Financial indicators are not meaningful (NM) as project is under construction

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Long Term Loan^	NA	NA	31-Dec-36	457.28	NA	CRISIL A/Stable
NA	Long Term Loan^^	NA	NA	31-Dec-36	100	NA	CRISIL A/Stable
NA	Long Term Loan*	NA	NA	31-Dec-36	74.44	NA	CRISIL A/Stable
NA	Long Term Loan**	NA	NA	31-Dec-36	16.28	NA	CRISIL A/Stable

^ Includes sublimit of Rs 250 crore for line of credit and Rs 95.27 crore as mobilisation bank guarantee

^^ Includes sublimit of Rs 20.83 crore as mobilisation bank guarantee

* Includes sublimit of overdraft facility of Rs 74.44 crore

** Includes sublimit of overdraft facility of Rs 16.28 crore