RATING RATIONALE

th 30 ​ Mar 2020 ​ ​ Bangalore Metro Rail Corporation Ltd. (BMRCL)

Brickwork Ratings reaffirms the ratings for the Bonds issues aggregating to Rs.800.00 Crores of Bangalore Metro Rail Corporation Ltd. (BMRCL)

Particulars

Amount Rating* (₹ Cr) Facilities/ Tenure Instrument** Previous Previous Present Present (Mar 2019)

Namma Metro Bond 300.00 300.00 Long Term BWR AA Series I BWR AA (Stable) (Stable) Proposed Bonds 500.00 500.00 Long Term Reaffirmed

Total 800.00 800.00 INR Eight Hundred Crores Only ​ ​ *Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ ** Details of Bank Loan facilities/NCD/Bonds/Commercial Paper is provided in Annexures-I&II ​ RATING ACTION / OUTLOOK

The rating primarily factors BMRCL’s Metro Rail project being implemented as a Central Sector project, MOU between BMRCL, Government of India (GOI) and Government of Karnataka (GOK). The MOU, inter alia, requires GOK to ensure making up any shortfall in BMRCL meeting the debt and coupon obligations. While approving Phase II of the BMRCL project GOK has provided for setting up a Metro Infrastructure Fund. The Metro Infrastructure Fund (MIF) has been opened with collection of Cess at the rate 5% from new developments for which Bangalore Development 1 1 1 Authority (BDA) is the nodal agency. MIF will be shared by BMRCL, BBMP ,​ BWSSB and BDA ​ ​ ​ at 60%, 20%, 10% and 10% respectively. The share received by BMRCL can be utilised to finance the metro project. It also factors in the importance of this project towards meeting the crucial transportation infrastructure of Bangalore City and progress in phase I and phase II of the project.

The rating, inter alia, has factored the financial support including equity participation from GOI and GOK on an ongoing basis, current status of the project as phase 1 is already complete and operational, Phase 2 is 43% complete, projects’ potential to reduce the city’s traffic congestion and the strong commitment of GOK to the project. With 100% completion of Phase 1 (42.3 Kms) project and Phase 2 implementation progress and expected increase in ridership, operating profits visibility in the coming period shall be the key rating sensitivities. 1 B​ BMP: Bruhat Bangalore Mahanagar Palike; BWSSB: Bangalore Water Supply and Sewerage Board; BDA: Bangalore Development Authority. ​ www.brickworkratings.com Page 1 of 8 ​ ​ ​

The rating is however constrained by the cost and time overrun in Phase 2 (70.095 Kms), where the cost of Phase 2 increased to Rs.30695.12 Crs during FY19 from earlier Rs.26405.14 Crs on account of increase in land cost after the increase in land cost during Sep’17 by GoK and expected completion time for phase 2 shifted to Jun’24. However, continuous increasing ridership with an average of 4,07,376 per day and 27 (six car) trains operating network have provided operational profitability during FY19. This is expected to increase going ahead. But, present lock down due to Covid-19, is expected to halt economic activities and cause revenue losses for the company.

Outlook for the company, remains Stable, considering completed status of phase 1, increase in ridership month on month basis, physical and financial progress of phase 2 and Phase 2A&2B, continuous equity infusion by GoI and GoK and support in the form of subordinated debt and low cost debt from The European Investment Bank (EIB), Asian Infrastructure Investment Bank (AIIB) and Japan International Cooperation Agency (JICA).

Going forward, the Company’s ability to implement phase 2 and 2A&2B in a timely manner within envisaged cost, improvement in ridership and non-fare box revenues to improve operating efficiencies and revenues, generate adequate cash flows to meet its debt obligations, reduce dependence on Govt. towards meeting its obligations and strengthen its overall credit profile would be the key rating sensitivities.

KEY RATING DRIVERS

Credit Strengths:

Completion status of Phase-1: BMRCL’s Namma metro phase-1 project is an initiative of ​ ​ ​ Government of India (GoI) and Government of Karnataka (GoK) as its joint promoters on 50:50 basis, with an attempt to improve the urban infrastructure of Bengaluru city and also reduce its traffic congestion. The Phase-1 project covers a distance of 42.3 kms, spread across two segments viz. North-South Corridor (Green Line) (Nagassandra - Puttenhalli) with 24.2 km and East West Corridor (Purple Line) (Baiypannahalli – Mysore Road) with 18.1 km. Phase-I was completed in Jun’17.

Improved Ridership started generating revenue growth: During Apr’19-Feb’20 (11 months), BMRCL’s ridership increased by 9.10% and reached to 13,35,40,582 as against 13,37,37,490 during FY19 (12 months) and collected a revenue of Rs.358.09 Crs during 11 months of FY20 from the Ph I of 42.3 km stretch as compared to Rs.355.02 Crs during FY19. At present average ridership stood at 4,07,376 per day with a highest ridership of 4,49,401 on 17th Oct 2019. Its trains (27 Six car trains) are ​ running at 99.8% punctuality.

Sovereign Loan: The GoI has extended PTA for the sovereign loans (from the Japan International Cooperation Agency (JICA) and Agence Française de Développement (AFD)) to BMRCL to ensure debt servicing till full repayment.

Management: Mr. Durga Shankar Mishra is the Chairman of the Corporation with effect from June 23, 2017. The other key management of BMRCL are Mr. Ajay Seth, Managing Director, Mr. M K Sinha (GoI Nominee), Mr. N M Dhoke, Director (Rolling stock, Signalling & Electrical) and Mr. D R www.brickworkratings.com Page 2 of 8 ​ ​ ​

K Reddy, Director (Project & Planning). Mr. Vasudevan is the Chief Financial officer since December 28, 2016.

Moderate financial risk profile: BMRCL has seen a stable revenue growth over the last couple of ​ years on account of increasing ridership and fully operational status of Phase-1, which has resulted in operational profits. The company has received budgetary funds from Govt. of India and Govt. of Karnataka to the extent of Rs.460.80 Crs during FY19. Share application money of Rs.582 Crs received from GoI and Rs.6960 Crs from GoK for Phase II. This has been retained as Share application money pending equal contribution by the concerned Govt. to maintain JV status. Its DE ratio remained moderate at 3.61x as of Sep’19, considering the large scale of the project with total debt of Rs.18100.70 Crs as against Net worth of Rs.5008.83 Crs.

Credit Risks:

Sponsor Support: BMRCL remains highly dependent on the Sponsor support towards debt servicing, GoI and Gok have injected Rs.3073.20 Crs and Rs.5060.82 Crs respectively towards Phase – I (100% completed) and Rs.6379.64 Crs and Rs.9088.12 Crs respectively towards Phase – II (as of Feb’20) and ~43% completed (physical) and 42% (financial) as of Feb’20.

Cost and time overrun of Phase 2: As of Feb’20, Phase – 2 was completed about 43% and expected to become fully operational by Jun’24 as against an earlier deadline of Mar’21. Further the cost of project was increased to Rs.30,695 Crs during FY19 as against earlier cost of Rs.26,405 Crs. This was mainly due to an increase in land cost, which was approved by GoK during FY17. However, a total amount of Rs.6293.00 Crore has been earmarked towards cost of land acquisition and rehabilitation for this Phase, which is being entirely borne by GoK. Therefore, we view timely implementation as a key risk in such a large capital-intensive public transport project.

Initial Stage of Phase 2A&2B: As of now, Bangalore Metro Rail Project Phase-2A, the Metro ​ alignment from Silk Board to K.R. Puram (ORR) of 17 Kms length with a total cost of Rs.5994.90 Crs & Phase-2B of KR Puram to Kempegowda International Airport Bangalore 29.06 Kms length has been approved by the GoK with a cost of Rs.10,584.15 Crs. These are in its initial phase of implementation and at an approved stage, which is expected to be completed by Jun’24.

ANALYTICAL APPROACH AND APPLICABLE RATING CRITERIA

For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale). BWR has taken a consolidated view on the operational and financial performance of the company while arriving at rating.

RATING SENSITIVITIES

Going forward, the Company’s ability to implement phase 2 and 2A&2B in a timely manner within cost limits as envisaged earlier, improve its ridership and non-fare box revenues to improve operating efficiencies and revenues , generate adequate cash flows to meet its debt obligations, reduce dependence on the Government. towards meeting its obligations and strengthen its overall credit profile would be the key rating sensitivities.

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Positive: The Outlook may be revised to “Positive” if operating performance improves on account of ​ improved ridership, implementation of phase 2 is completed in a timely manner and within approved costs, reduction in dependency on sponsor support, and improvement in EBITDA with optimum increase in revenues and cash accruals generation.

Negative: The Rating may be revised “downward”, if the company fails to increase its ridership, ​ ​ resulting in EBITDA loss, deterioration in financial profile of GoK, and generation of lower than expected revenues.

LIQUIDITY POSITION

The liquidity of the company remains strong as its total debt of Rs.18100.70 Crs as of Sep’19, has a ​ very long term repayment tenor, there is continuous sponsor support (from GoK and GoI), zero short term debt or working capital facilities. Out of the total debt, the senior debt portion is about Rs.7500 Crs and rest is in the form of subordinated debt from GoI and GoK. This subordinated debt is mainly for specific purposes like GoK – Land acquisition and reimbursement of Taxes and GoI – Share of central taxes. The company has generated cash accruals of Rs.87.39 Crs in FY19 as against the annual debt repayment (CPLTD) of Rs.220 Crs-Rs.230 Crs (annually) in FY19.The company had Rs.81.87 Crs of Cash and Equivalents as on FY19, The company has met its debt and capital obligations from budgetary funds from Govt. of India and Govt. of Karnataka which has been to the extent of Rs.460.80 Crs during FY19. However, its ISCR and DSCR remain low as the phase 2 is still under ​ implementation stage.

Terms of the Bond Issue: Bond of Rs.500 Crs for the said project was rated by us initially in Aug 2013 and the Corporation has raised Rs.300 Crs; The Bonds have the continued support from Sponsors i.e. GoI and GoK. BMRCL proposes to raise an additional amount of Rs.300 Crs in addition to the unissued amount of Rs.200 Crs and requested for a consolidated rating of Rs.500 Crs of proposed NCD Issue. BMRCL plans to raise the proposed bond issue in the form of Bonds/Non-Convertible Debentures having a tenor upto 10 years to be of one or more series within the face value of Rs.500 Crs. The proposed bonds will be utilized for the namma metro project.

Phase I of the project which has achieved physical progress and financial progress of 100% as of June 30, 2017. Phase II of the project is under implementation and has achieved physical progress and financial progress of 43% as of Feb’20. The detailed terms of the proposed bond issue to be shared by the Corporation up on its finalization.

The existing bonds of Rs.300 Crs are Bonds/NCDs with a tenor of 10 years availed for funding the Phase I project cost. In December 2014, the Corporation raised Rs.300 Crs at a coupon of 8.79% p.a. payable semi-annually, which was utilized to repay its high cost borrowings from Banks. Servicing of the coupon payment due till December, 2019 of the raised bond is regular as confirmed by both the Corporation and the Debenture Trustee. GOK, GOI and BMRCL have signed an MOU on 24th Dec. 2010 and have recorded this in their understandings, commitments, obligations, covenants and their interfaces in respect of this project. All the parties have also signed a supplementary to the said MOU on 10th July, 2013, to further define the role and commitments of the respective parties in funding the debt of the Bond holders and other senior term lenders and approve a payment mechanism to ensure repayment of all debt in full. In terms of the MOU, the Govt. of Karnataka is committed to fund any shortfall 25 days prior to the due www.brickworkratings.com Page 4 of 8 ​ ​ ​

date in SCS (Shadow Cash Support) and TRA (Trust and Retention Account) Accounts to enable BMRCL to meet debt obligations.

COMPANY PROFILE

Bangalore Metro Rail project (“Namma Metro”) is being implemented as a Central Sector project through BMRCL the SPV, with GOI and GOK being Joint promoters with equal equity holding. The Metro Project comprises of East-West corridor (Green Line) - 18.10 km long, starting from Baiyappanahalli in the East and terminating at Mysore Road terminal in the West and a 24.20 km North-South corridor (Purple Line) commencing at Nagasandra in the North and terminating at Puttenahalli in the South.

Phase 2 consist of a total length of 72.095 kms with Elevated section of 58.195 km and Underground section of 13.90 kms. It is having an estimated cost of Rs.30,695 Crs and expected to be completed by Jun’24. Further, Phase 2A, the Metro alignment from Silk Board to K.R. Puram (ORR) of 17 Kms length with a cost of Rs.5994.90 Crs and Phase 2B from KR Puram to Kempegowda International Airport Bangalore consists of 29.06 Kms length has been approved by the GoK with a cost of Rs.10,584.15 Crs.

KEY FINANCIAL INDICATORS (in INR Crs)

As per audited financials of FY19, BMRCL’s Balance sheet size shows an increase from Rs.18,966 Crs in FY18 to Rs.21947 Crs as on Fy19. Upon sanction and release of equity funds for Phase 1 & 2 of the BMRCL project from GOI and GOK - the equity paid up capital as of FY19 stands at Rs.5,823.78 Crs, which further increased to Rs.6509.98 Crs as of Sep’19. The Corporation’s total debt is stood at Rs.16,428.56 Crs as against a Net worth of Rs.4,757.38 Crs as of FY19, which further increased to Rs.18100.70 Crs and Rs.5008.83 Crs as of Sep’19 respectively.

Total Operating Income has increased from Rs.325.00 Crs in FY18 to Rs.402.35 Crs in FY19, due to increase in ridership income. The gestation period for such kind of projects is longer and hence its break-even will take longer. The leverage for such projects is generally very high. EBITDA has improved from a profit of Rs.62.28 Crs in FY18 to Rs.67.39 Crs in FY19. However, Loss after tax increased to Rs.496.55 Crs in FY19 from Rs.351.10 Crs in FY18. As of H1 FY20, BMRCL’s total Operating income stood at Rs.212.75 Crs with EBITDA of Rs.29.36 Crs and a net loss of Rs.301.33 Crs.

FINANCIAL INDICATORS – ISSUER Key Parameters Units FY18 FY19 Result Type Audited Audited Operating Income Rs. Crs 325.00 402.35 EBITDA Rs. Crs 62.28 67.39 PAT Rs. Crs -351.10 -496.55 Tangible Net-Worth Rs. Crs 4309.94 4757.38 D: E Ratio Times 3.24 3.45

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Current Ratio Times 2.42 1.82

KEY COVENANTS OF THE INSTRUMENT/FACILITY RATED Namma Metro Bonds Series 1 of Rs.300 Crs are secured in nature and having bullet repayment at the end of tenor with semi-annual interest payments. The bonds are secured by Pari-Passu charge on land and building of the company comprising of Jalahalli, Dasarahalli, and Nagasandra stations of Reach rd -3B measuring 29503 Sqmts. Repayment of the funds due on 23 ​ Dec 2024. ​

NON-COOPERATION WITH PREVIOUS RATING AGENCY IF ANY: NA

RATING HISTORY

Instrument Current Rating Rating History Tenure Amount (Long Term/ Rating Mar 2019 Mar 2018 Mar 2017 Oct 2016 ( Cr) Short Term) ₹ BWR AA Namma Metro BWR AA BWR AA BWR AA BWR AA Long Term 300.00 (Stable) Bond Series I (Stable) (Stable) (Stable) (Stable) Reaffirmed BWR AA BWR AA BWR AA BWR AA Proposed Bonds Long Term 500.00 (Stable) - (Stable) (Stable) (Stable) Reaffirmed Total 800.00 INR Eight Hundred Crores Only

COMPLEXITY LEVELS OF THE INSTRUMENTS

For more information, visit www.brickworkratings.com/download/ComplexityLevels.pdf ​ Hyperlink/Reference to applicable Criteria

● General Criteria

● Approach to Financial Ratios

● Infrastructure Sector

Analytical Contacts Investor and Media Relations

Mukesh Mahor Senior Manager – Ratings Liena Thakur Primary Analyst Assistant Vice President - Corporate Communications Board: +91 80 4090 9940 Ext: 333 +91 84339 94686 [email protected] [email protected]

Vipula Sharma Director – Ratings Board: +91 80 4090 9940 [email protected]

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Bangalore Metro Rail Corporation Ltd. (BMRCL) ANNEXURE I INSTRUMENT (Bonds/NCD) DETAILS

Amount in Crs. Coupon Maturity Instrument Issue Date ISIN Particulars (Outstanding Rate Date )

Namma Metro 23-Dec-14 300.00 8.79% 08-Jun-24 INE928P07019 Bond Series I

Proposed - 500.00 - - - Bonds

Total 800.00 INR Eight Hundred Crores Only

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About Brickwork Ratings: Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, accredited by ​ RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a leading public sector bank, as its promoter and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

DISCLAIMER Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The

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rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons

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