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Gopalpur Ports Limited February 17, 2021 Ratings Amount Facilities Rating1 Rating Action (Rs. crore) Fund-based Bank facilities- LT term Loan 1,447.03 Revised from CARE BBB (CE) [Triple B CARE BBB; Stable Non-fund-based Bank facilities – Bank (Credit Enhancement)] and removed 35.00 (Triple B; Outlook: Guarantee from Credit watch with Negative Stable) Fund-based – Cash Credit Limits 15.00 Implications; Stable outlook assigned 1,497.03 Total Facilities (Rs. One thousand four hundred ninety seven crore and three lakh only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers The revision in the rating assigned to the long-term bank facilities of Gopalpur Ports Limited (GPL) takes into cognizance advance stage of construction progress; enhanced operational performance and improved revenue visibility in FY20 and 9MFY21. The port has handled 7.79 million ton cargo for the period 9MFY21 (refers to the period April 1 to December 31) as compared with 5.56 million ton and 1.51 ton in FY20 and FY19, respectively. Given the steady improvement in the inherent credit profile of GPL, the Letter of Comfort (LOC) mechanism from Shapoorji Pallonji and Company Private Limited (SPCPL; ratings revised to ‘CARE A-/ CARE A2+; under credit watch with negative implications’ from ‘CARE A+/CARE A1+; under credit watch with developing implications’) issued to the lenders of GPL towards rated facilities for timely debt servicing, is no longer perceived to offer additional credit enhancement. The rating continues to derive strength from experienced promoter group, the Shapoorji Pallonji (SP) group, favorable location of the port, tariff flexibility, potential to handle large capacity cargo ships and through-put agreements with large customers imparting revenue visibility. The rating strengths are, however, tempered by construction risk partially off-set by engaging experienced Engineering, Procurement and Construction (EPC) contractor, competition from nearby ports, susceptibility of cargo volumes to economic cycles and exposure to volatile weather conditions. Rating Sensitivities: Positive Factors – Factors that could lead to positive rating action / upgrade:  Entering into firm Memorandums of Understanding (MoUs) with prominent entities offering superior long-term /sustained revenue visibility Negative Factors – Factors that could lead to negative rating action / downgrade:  Unprecedented delay in the completion and commissioning of the port  Non-adherence of sanctioned terms as per financing documents  Any debt-funded capex beyond envisaged levels

Detailed description of the key rating drivers Key Rating Strengths Experienced promoter group albeit moderated credit profile in recent past The SP group is one of the ’s oldest and well-reputed business groups in the construction, infrastructure and real estate space, with history of more than 154 years. As the group’s flagship company, SPCPL benefits from vast experience of its qualified promoters and management as well as from the group’s resourcefulness and ability to raise fund through capital market instruments. The promoters also infused funds aggregating Rs.1740 crore during FY19 and Rs.1,904 crore during FY20. The SP group articulated over a period of time its intent to deleverage SPCPL and its group companies and augment the long- term resources; the promoters had conveyed their continued support by way of proposed fund infusion of approximately USD 1 billion during H1FY21, which remained unsuccessful till date.

Moderate Construction risk for GPL partially offset by engaging experienced EPC contractor and upsurge in operational performance In FY19, Gopalpur Port had cargo handling capacity of around 5 MMTPA of which, utilization was 1.5 MMT and further increased to 5.56 MMT in FY20 and 7.79 MMT in 9MFY21, respectively. As on January 31, 2021 GPL can handle approximately 15 MMTPA (for which environmental clearance is in place). With the completion of expansion of railway yard (expected to be completed in FY21), it can handle up to 20 MTPA. The company has appointed Afcons Infrastructure Private

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Limited as EPC Contractor for the construction of the berths and the breakwater at the project. This contract is a fixed price contract based on the internationally accepted FIDIC contract (silver book). Afcons is a market leader in EPC for marine projects in India and among the top fifteen players globally. However, due to outbreak of Covid-19 pandemic, the commissioning has been extended to December 2021, while the management targets completion by June 2021. Any substantial deviation from the extended timelines is a key rating monitorable.

Favorable location of the port and ability to handle large ship sizes The Gopalpur Port located along the between the two busiest port on the East Coast of India, south of & north of Vizag Port, both ports are currently operating at full capacity leading to diversion of large hinterland traffic to far-off west coast ports and long waiting time for the ships. The port is connected to the Golden Quadrilateral (NH-5) through NH-516 which is 6 km from the port. The port also has two railway sidings which are connected to the Howrah- Chennai Trunk Line accessible to both the east and south of India.

Tariff flexibility As Gopalpur Port is not a major port, it does not have tariffs regularized by TAMP (Tariff Authority for Major Ports) and are free to charge competitive market rates. This allows the port to have flexibility in providing and pricing, additional value- added services. However, as per industry practice, vessel-based rates are standard and remain constant. However, cargo handling charges vary from customer to customer based on quantity, type of cargo, credit worthiness, etc. Therefore, minimum off-take clauses might affect the prices at times.

Through-put agreement with various large customers imparting revenue visibility GPL has entered into tie-ups with prominent cement and steel manufacturers for the usage of the port on a contracted take- or-pay basis, thereby imparting revenue visibility. Meanwhile, positive outlook of infrastructure sector in near to medium term is further expected to enhance the demand outlook for the cargo volumes at GPL.

Key Rating Weaknesses High competition from nearby ports and susceptibility of cargo volumes to economic cycles GPL faces competition from the other ports nearby like Paradip, Vishakhapatnam, etc. all having a longer operational track record as compared to GPL. Furthermore, the performance of the port is also linked to cargo traffic, which consequently depends on the health of the economy. Any slowdown in the economy is likely to result in subdued volume growth and therefore impart volatility in revenues in the long term.

Exposure to volatile weather conditions Being located on the eastern coast of India, Gopalpur port is exposed to the volatile weather conditions like heavy monsoon and possibility of cyclones. The monsoon and cyclones impact the operations of the port and the prolonged monsoon during FY20 resulted in a delay in the construction of the port. However, as per management discussions, the port is under- construction into an all-weather port and it has been designed in such a way so as to withstand disruption from cyclones once the construction is completed. Further, in case of cyclone, operations are generally suspended for 2-3 days but this suspension is common at all nearby ports, and is therefore likely to result in similar impact for all such ports. During monsoon, cargo like limestone cannot be handled, however, some cargo like coal can still be handled, thereby imparting seasonality to the cargo volumes. Further, in case of termination of the agreement on the account of force majeure (FM) events like Act of God, storm, cyclone, hurricane, landslide, flood, volcanic eruption or fire affecting the construction or operation of the port; radio-active contamination, ionizing radiation; epidemic, famine; strikes, boycotts or other forms of labour unrest interrupting supplies and services and the calling of vessels at the Port; an act of war; etc., the concession agreement provides for compensation. The insurance policy taken for the port also covers FM events.

Liquidity Liquidity Profile: Adequate GPL’s liquidity is provided by unencumbered cash and bank balances and the company’s ability to drawdown the unutilized sanctioned loans. Although the company does not have any significant debt maturities over the near term, as there is a moratorium for debt servicing and the first principal repayment becoming due in January 2022; hence, only interest repayments are due, except a vehicle loan of Rs.35 lakh to be paid in monthly instalments till FY23. The company has availed moratorium for interest servicing due from April 1, 2020 till September 1, 2020. As on January 31, 2021, GPL has a fixed deposit balance of Rs.284.03 crore and a DSRA balance of Rs.33.45 crore.

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Analytical approach Standalone assessment of GPL along with factoring linkages with ultimate parent SPCPL. Earlier, the analytical approach encompassed the credit enhancement in the form of Letter of Comfort extended by SPCPL to the lenders of GPL towards the rated bank facilities. Given the steady improvement in the inherent credit profile of GPL, the Letter of Comfort (LOC) mechanism from SPCPL issued to the lenders of GPL towards rated facilities of Rs. 1,500 crore, is no longer perceived to offer additional credit enhancement.

Applicable Criteria CARE’s Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition Project Stage entities Rating Methodology - Infrastructure Sector Ratings Rating Methodology - Port Projects Rating Methodology - Factoring Linkages Parent Sub JV Group Financial Ratios – Non-financial sector Liquidity Analysis of Non-Financial Sector Entities

About the Company Gopalpur Ports Limited (GPL) is owned by the Shapoorji Pallonji group through SP Port Maintenance Pvt Ltd (SPPMPL), a wholly-owned subsidiary of SP Imperial Star Pvt. Ltd. (rated ‘CARE BBB+; Stable’). Gopalpur Port is a deep sea port located on the East coast of India. The concession for the port was signed in September 2006 and is valid for 30 years. A consortium of Stevedoring Ltd. (OSL) and Sara International under the BOOST model took up the project and completed the expansion/construction for developing the port from a fair weather port to an all-weather port through bids invited by the Government of Odisha. The Concession period can be further extended by 20 years, based on mutual consent between Government of Odisha and Concessionaire. In 2017, SPPMPL took over majority shareholding from Sara International and OSL. The Shapoorji Pallonji group’s strategy is to acquire through port asset holding-company SPPMPL, port assets which are stuck for various reasons such as paucity of funds for capital expenditure and operational inefficiencies. SPPMPL in turn will try and improve the operations of these ports. Also, SPPMPL has a controlling stake in each of the port it acquires so that it can influence operational and strategic decisions by port SPVs. The Shapoorji Pallonji group through its subsidiary SPPMPL is entering into the port segment of the infrastructure sector. The Shapoorji Pallonji group has previous experience in this segment with ongoing Greenfield port development at Chhar Port, Gujarat. The group is also operating the Dharamtar Port (at Mandwa, Maharashtra) under group company PNP Maritime Services (rated ‘CARE BBB+; Stable’). Brief Financials of GPL (Rs. crore) FY19 (A) FY20 (A) Total operating income 63.66 220.85 PBILDT -8.76 68.74 PAT -25.97 -1.68 Overall gearing (times) 1.35 2.55 Interest coverage (times) NM 1.59 A: Audited; NM: Not Meaningful; Note: Financials are classified as per CARE’s internal standards

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History for last three years: Please refer Annexure-2

Covenants of rated facility: Detailed explanation of covenants of the rated facilities is given in Annexure-3

Complexity level of various instruments rated for this company: Annexure 4

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Annexure-1: Details of Facilities

Name of the Date of Coupon Maturity Size of the Issue Rating assigned along with Facility Issuance Rate Date (Rs. crore) Rating Outlook Fund-based - LT-Term October 12, CARE BBB; Stable - - 1447.03 Loan 2032 Non-fund-based - LT- CARE BBB; Stable - - - 35.00 Bank Guarantees Fund-based - LT-Cash CARE BBB; Stable - - - 15.00 Credit Un Supported Rating- Withdrawn Un Supported Rating - - - 0.00

(Long Term)

Annexure-2: Rating History of last three years

Current Ratings Rating history Name of the Sr. Type Rating Date(s) & Date(s) & Date(s) & Instrument/Bank Amount Date(s) & Rating(s) No. Rating(s) Rating(s) Rating(s) Facilities Outstanding assigned in 2019- assigned in assigned in assigned in (Rs. crore) 2020 2020-2021 2018-2019 2017-2018 1)CARE A- (CE) (CWD) 1)CARE AA 1)CARE 1)CARE AA- (17-Dec-19) (SO); Stable BBB (CE) (SO) (CWD) CARE BBB; 2)CARE A+ (SO) (16-Oct-17) Fund-based - (CWN) (11-Dec-18) 1. LT 1447.03 Stable (CWD) 2)Provisional LT-Term Loan (14-Oct- 2)CARE AA (10-Jun-19) CARE AA 20) (SO); Stable 3)CARE AA- (SO) (SO); Stable (23-Nov-18) (CWD) (10-Oct-17) (05-Apr-19) 1)CARE A- (CE) (CWD) 1)CARE AA 1)CARE 1)CARE AA- (17-Dec-19) (SO); Stable BBB (CE) (SO) (CWD) Non-fund- CARE BBB; 2)CARE A+ (SO) (16-Oct-17) (CWN) (11-Dec-18) 2. based - LT-Bank LT 35.00 Stable (CWD) 2)Provisional (14-Oct- 2)CARE AA Guarantees (10-Jun-19) CARE AA 20) (SO); Stable 3)CARE AA- (SO) (SO); Stable (23-Nov-18) (CWD) (10-Oct-17) (05-Apr-19) 1)CARE A- (CE) (CWD) 1)CARE AA 1)CARE 1)CARE AA- (17-Dec-19) (SO); Stable BBB (CE) (SO) (CWD) CARE BBB; 2)CARE A+ (SO) (16-Oct-17) Fund-based - (CWN) (11-Dec-18) 3. LT 15.00 Stable (CWD) 2)Provisional LT-Cash Credit (14-Oct- 2)CARE AA (10-Jun-19) CARE AA 20) (SO); Stable 3)CARE AA- (SO) (SO); Stable (23-Nov-18) (CWD) (10-Oct-17) (05-Apr-19) Un Supported 1)CARE Rating-Un BBB- 1)CARE BBB 4. Supported LT - - - - (14-Oct- (17-Dec-19) Rating (Long 20) Term)

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Annexure-3: Detailed explanation of covenants of the rated facilities

Bank Facilities Detailed explanation A. Financial covenants I. Fixed Assets Coverage Ratio (FACR) Minimum FACR of 1.15x to be maintained throughout the tenor II. Term Debt to EBITDA Maximum term debt to EBITDA of 6x throughout the tenor III. Debt to Equity Debt to Equity of 70:30 throughout the tenor IV. Debt Service Coverage Ratio (DSCR) Minimum DSCR shall not fall below 1.20 for tenor

Annexure 4: Complexity level of various instruments rated for this company

Sr. No. Name of the Instrument Complexity Level 1. Fund-based - LT-Cash Credit Simple 2. Fund-based - LT-Term Loan Simple 3. Non-fund-based - LT-Bank Guarantees Simple 4. Un Supported Rating-Un Supported Rating (Long Term) Simple

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

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Contact us Media Contact Mradul Mishra Contact no. – +91-22-6837 4424 Email ID – [email protected]

Analyst Contact Group Head Name - Rajashree Murkute Group Head Contact no. - +91-22-6837 4474 Group Head Email ID- [email protected]

Relationship Contact Name: Saikat Roy Contact no. : +91-22-6754 3404 Email ID: [email protected]

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