Jharkhand Central Railway Limited: [ICRA]BBB+ (Stable) Assigned
December 03, 2020 Jharkhand Central Railway Limited: [ICRA]BBB+ (Stable) assigned Summary of rating action Current Rated Amount Instrument* Rating Action (Rs. crore) Proposed Term Loans 1,259.75 [ICRA]BBB+ (Stable); Assigned Total 1,259.75 *Instrument details are provided in Annexure-1 Rationale The rating assignment factors in Jharkhand Central Railway Limited’s (JCRL’s) long-term concession agreement with the Ministry of Railways (MoR), which provides earnings visibility to its upcoming railway project, and the approval to charge an inflated mileage from users, which would make the project’s return indicators attractive. ICRA notes that Central Coalfields Limited (CCL, JCRL’s parent, owning 64%1 of the shareholding) plans to significantly ramp-up coal production in the North Karanpura coalfield over the medium term, which, along with shorter lead distances, faster rake turn-around times, and lower trip costs following the commissioning of JCRL’s railway line, partly mitigates the traffic fluctuation risk. Moreover, given the strategic importance of the rail corridor to CCL's expansion plans, the operational synergies between CCL and JCRL remains high, which supports JCRL’s business risk profile. In addition, JCRL’s credit profile benefits from the strong financial profile of its parent CCL, as well as IRCON International Limited (IRCON), which has a target shareholding of 26% in JCRL. JCRL’s rating also factors in the fixed revenue share clause with MoR for providing reserve services, which partly mitigates risks associated with inadequate increase in freight rates to cover for rising operation and maintenance (O&M) costs. The rating, however, is tempered by JCRL’s exposure to high project implementation risks, leading to risks of time and cost over-runs, and the company’s sizeable dependence on external borrowings, which is likely to lead to modest debt coverage metrics during the initial years post commissioning.
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