May 18, 2021
APG Industrial Conglomerate Private Limited: Rating upgraded
Summary of rating action
Previous Rated Current Rated Instrument* Rating Action Amount (Rs. crore) Amount (Rs. crore) Long-term Fund-based – Term Loan 165.00 165.00 [ICRA]A (Stable); upgraded Long-term Non-Fund based# (20.0) (20.0) from [ICRA]BBB+(Stable) Total 165.00 165.00
*Instrument details are provided in Annexure-1 #sub-limit of Long-term fund-based- Term Loan
Rationale
The rating upgrade follows the successful handover of the entire leasable area in APG Industrial Conglomerate Private Limited’s (APGICPL) warehousing project to the identified tenant, as well as achievement of financial closure for lease rental discounting (LRD) loans to repay the entire construction finance availed for the project. The rent for the entire project will stabilize from July 2021 onwards. With these developments, the refinancing risk and project implementation risks identified in the last rating exercise have been mitigated to a large extent. The rating continues to draw comfort from the lease tie-up in place with a leading ecommerce company for the entire development. The leases have a long tenure of 20 years and a lock-in period of three to five years. The rating draws further comfort from the track record of the development and asset manager (LOGOS India) in the development and maintenance of warehousing projects, and that of the sponsor group (Assetz Property Group), in the real estate sector. The rating is, however, constrained by the company’s high leverage with stabilised Debt / Rent income of around 7.4 times in the first year. Nonetheless, due to the long tenure of the LRD loans sanctioned, the debt coverage indicators are expected to be adequate. The rating is, further constrained by the high tenant concentration, with the single tenant contributing 100% of the total rental income. The rating also takes into account the increase in the competition in the industrial warehousing segment in India, which may put pressure on the occupancy or rental rates over the medium to long term. However, there is a lock-in period of three to five years which provides visibility on the lease continuance and stability to the revenue. The Stable outlook reflects ICRA’s expectation that the company will continue to benefit from the operational track record of the sponsor group and that of the development manager, as well as from the presence of a long-term lease with strong profile of the tenant, including a lock-in period of three to five years.
Key rating drivers and their description
Credit strengths
Track record of sponsor and development manager - The company is promoted by Assetz Property Group, and the development and asset management is being executed by LAI Investment Manager Private Limited (part of LOGOS Property Group). LOGOS Property Group has developed/ developing logistics real estate across 59 properties including Australia, China, Singapore, Indonesia, India etc. The Assetz Property Group, headquartered in Singapore and founded in 2006, is a real estate development and asset management company with four business verticals – commercial, residential, warehousing and fund management.
Fully leased to a leading e-commerce company – The company has developed a warehouse facility for leading ecommerce company in India on the build to suit basis on a total land area of 30 acres situated in Devanahalli, Bangalore, with a leasable
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area of 0.98 mn sq ft. It has already signed lease deed for 40% of the leasable area for which rental payments have already started. For the balance area, the company has handed over the building to the tenant with rent scheduled to start in July 2021. The lease tenure is for 20 years, with a further renewal option of 20 years – at the option of the tenant – and the lock- in period is three to five years.
LRD loans in place to refinance construction finance debt – The project was part-funded through a Rs 165-crore construction finance debt and the remainder being equity. The company has received sanction of LRD loans up to Rs 185 crore which can be used to refinance the construction finance debt ahead of its scheduled maturity.
Credit challenges
High leverage with moderate coverage ratios - High leverage with stabilised Debt / Rent income of around 7.4 times in the first year. Nonetheless, due to the long tenure of the LRD loans sanctioned, the debt coverage indicators are expected to be adequate. The cumulative DSCR over the loan tenure remains comfortable at more than 1.4x.
High tenant and asset concentration risk - The company remains dependent on the single asset and single tenant for its revenue generation. This makes it vulnerable to any delays in rent remittance by the tenant or vacancy risk. However, a strong tenant profile, a lock-in period of three to five years and the investment by the tenant in fit-outs reduce the vacancy risk to some extent.
Liquidity position: Adequate
The company had cash and bank balance of Rs. 7.7 crore as on March 31, 2020. The balance cost for the project will be met through undrawn sanctioned line of credit, security deposits from tenants and equity infusion from promoters, as and when required. The project loan will be refinanced with lease rental discounting loan once the rent starts for the entire area. The LRD loan is expected to have adequate debt coverage metrics.
Rating sensitivities
Positive factors – The rating could be upgraded if material prepayment of debt results in five-year average DSCR greater than 1.4x Negative factors – The rating could be downgraded if there is delay in rent commencement as compared to expected timelines or if the five-year average DSCR remains less than 1.15x on sustained basis.
Analytical approach
Analytical Approach Comments
Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for Debt backed by Lease Rentals
Parent/Group Support Not Applicable
Consolidation/Standalone The rating is based on the standalone profile of the rated entity.
About the company
The company is a part of the Assetz Property Group (APG), which is a diversified real estate development and management group, APGICPL is developing a warehouse facility for a leading ecommerce company in India on a total land area of 30 acres situated in Hitech, Defence and Aerospace Park, Devanahalli, Bangalore. The leasable area is 0.98 mn sq ft with an expected
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annual rent of Rs. 25.0 crore. LOGOS Group is acting as the development manager for the project and is responsible for end- to-end execution of the project, including its marketing, construction and maintenance.
Key financial indicators (audited)
APGICPL FY2018 FY2019 FY2020 Operating Income (Rs. crore) 0.0 0.0 0.0 PAT (Rs. crore) 0.0 0.0 -0.1 OPBDIT/OI (%) - - - RoCE (%) - - - Total Outside Liabilities/Tangible Net Worth (times) 10.4 10.4 44.0 Total Debt/OPBDIT (times) - - - Interest Coverage (times) - - - DSCR (times) - - - PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net Worth + Deferred Tax Liability - Capital Work in Progress); DSCR: (PBIT + Mat Credit Entitlements - Fair Value Gains through P&L - Non-cash Extraordinary Gain/Loss)/(Interest + Repayments made during the Year)
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for past three years
Current Rating (FY2022) Chronology of Rating History Amount Amount Date & Rating FY2021 FY2020 FY2019 Instrument Type Rated Outstanding # Feb 10, May 18, 2021 Feb 02, 2021 Mar 11, 2020 - (Rs. crore) (Rs. crore) 2021 Long- [ICRA]A [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB 1 Term Loan 165.0 86.13 - term (Stable) (Stable) (Stable) (Stable) Non-fund Long- [ICRA]A [ICRA]BBB+ 1 (20.0) (4.34) - - - based* term (Stable) (Stable) *sub-limit of Term Loan; #amount outstanding as on May 05, 2021
Complexity level of the rated instrument
Instrument Complexity Indicator Long-term Fund-based – Term Loan Simple Long term – Non fund based Simple The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analyzing an entity's financial, business, industry risks or complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is available on ICRA’s website: www.icra.in
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Annexure-1: Instrument details
Date of Issuance / Amount Rated Current Rating and ISIN No Instrument Name Coupon Rate Maturity Date Sanction (Rs. Crore) Outlook NA Term Loan Dec 2019 - Dec 2021 165.0 [ICRA]A (Stable) NA Letter of Credit* Dec 2019 - - (10.0) [ICRA]A (Stable) NA Bank Guarantee* Dec 2019 - - (10.0) [ICRA]A (Stable) Source: Company *sub-limit of Term loan
Annexure-2: List of entities considered for consolidated analysis: Not Applicable
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ANALYST CONTACTS Shubham Jain Mathew Kurian Eranat +91 124 4545 306 +91 80 4332 6415 [email protected] [email protected]
Ishan Luthra +91 80 4332 6426 [email protected]
RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected]
MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]
Helpline for business queries
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]
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