H.G. Ateli Narnaul Highway Private Limited:Rating Assigned Summary
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December 20, 2019 H.G. Ateli Narnaul Highway Private Limited:Rating assigned Summary of rating action Current Rated Amount Instrument* Rating Action (Rs crore) Fund-based –Term Loan 405.95 [ICRA]A(CE) (Stable); Assigned Non-fund-based limits# (95.21) [ICRA]A1(CE); Assigned Total 405.95 * Instrument details mentioned in Annexure-1 # interchangeable with term loan Rating Without Explicit Credit [ICRA]A- Enhancement Note: The (CE) suffix mentioned alongside the rating symbol indicates that the rated instrument/facility is backed by some form of explicit credit enhancement. This rating is specific to the rated instrument/facility, its terms and its structure and does not represent ICRA’s opinion on the general credit quality of the entity concerned. The last row in the table above also captures ICRA’s opinion on the rating without factoring in the explicit credit enhancement Rationale ICRA has taken a consolidated view of H.G. Infra Engineering Limited (HGIEL) as well as its special purpose vehicles (SPVs) incorporated to carry out road construction projects, wherein HGIEL has extended unconditional and irrevocable corporate guarantees towards their debt obligations.The above rating considers the strength of the corporate guarantee provided by HGIEL, the parent of H.G. Ateli Narnaul Highway Private Limited (HANHPL), for the bank line facilities of HANHPL. The Stable outlook on this rating reflects ICRA’s outlook on the rating of the guarantor, HGIEL. Adequacy of credit enhancement The guarantee is legally enforceable, irrevocable, unconditional and covers the entire amount and tenor of the rated instrument. Given these attributes, the guarantee provided by HGIEL is adequately strong to result in an enhancement in the rating of the said instrument to [ICRA]A(CE) against the rating of [ICRA]A- without explicit credit enhancement. In case the rating of the guarantor were to undergo a change in future, the same would reflect in the rating of the aforesaid instrument as well. Salient covenants related to the credit enhancement, as specified in the terms of the transaction » The guarantee is unconditional, irrevocable and absolute. » The guarantee is continuing and shall remain in full force and effect until the Guarantee Discharge Date, which is the date until the Guarantor discharges the Guaranteed Obligations, to the satisfaction of the Lender in terms of the Guarantee Deed. 1 Key rating drivers Credit strengths Strong profile of the sponsor – HGIEL, the sponsor of HANHPL, has a well-established and reputed image in the civil construction industry, which benefits the company. Benefits accruing from HAM – The project, being executed under HAM, would be supported by benefits inherent under HAM such as upfront availability of RoW, inflation-linked revisions to bid project cost during the construction period and relatively lower risk of equity mobilisation with 40% of the project cost to be funded by grants from the authority during the construction period. The project will have a stable revenue stream in the form of annuity that would be received post-commissioning (equivalent to 60% of the project cost) over the term of the concession period from the National Highway Authority of India (NHAI), a Central Government entity. Established track record of HGIEL in road construction – HANHPL has entered into a fixed-price engineering, procurement and construction (EPC) contract with HGIEL, which has multiple decades of experience and an established track record of timely execution of projects within the budgeted cost, especially in the road construction segment. Corporate guarantee from sponsor – HGIEL has provided an unconditional and irrevocable corporate guarantee for the bank facilities of HANHPL. Credit challenges Project exposed to execution risk and moderate funding risk – The project is vulnerable to moderate execution risks, since the appointed date has not been declared and the construction has not been started. However, HANHPL is a low complexity project, where the implementation risk is mitigated to an extent by a fixed-price, fixed-time contract and HGIEL’s strong project execution capabilities. Project returns exposed to changes in inflation and interest rate risk – HANHPL’s cash flows remain exposed to the interest rate risk due to the floating nature of interest rates for the project term loan. In an event of persistently low rates of inflation, the interest payments on annuity might be lower than expected. Proper maintenance of lanes essential for receipt of annuity payments – HANHPL’s source of income includes the annuity, interest on outstanding annuities and annual O&M payments from the authority concerned. Hence, ensuring proper maintenance of roads, along with zero deduction in annuity receipts, will be the key credit sensitivity for HANHPL. Liquidity position: Adequate The liquidity position of HANHPL is driven by the liquidity position of its guarantor, HGIEL. Further, at the project level, liquidity is expected to remain adequate, as the company has achieved financial closure and half of the total equity commitment is to be brought in upfront prior to debt drawdown. Hence, HANHPL would have access to funds in the form of equity as well as sanctioned term loan. The liquidity is further expected to be supported by mobilisation advances and grant from the NHAI. Rating sensitivities The rating assigned to the bank lines of HANHPL will remain sensitive to any movement in the rating or outlook of the guarantor, HGIEL. 2 Analytical approach Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Approach for rating debt instruments backed by third-party explicit support Parent: H.G. Infra Engineering Ltd Parent/Group Support The assigned rating is based on the unconditional, irrevocable corporate guarantee extended by HANHPL’s parent company, HGIEL. For arriving at the rating, ICRA has consolidated the financials of the various Consolidation / Standalone group entities of HGIEL (as mentioned in Annexure-2) given the close business, financial and managerial linkages among them. About the company HANHPL is a wholly-owned subsidiary of HGIEL. HANHPL is an SPV formed on the basis of a 17.5-year concession agreement (including two and half years of construction period) on May 27, 2019 with the NHAI, wherein HANHPL is to undertake the construction of proposed Narnaul bypass and Ateli Mandi to Narnaul section of NH-11 in Haryana through a private public partnership (PPP) model on a hybrid annuity mode. The appointed date has not been declared yet, hence, the construction of the project has not been started. The company has completed financial tie-up in September 2019. The bid project cost and the total project cost for the project is Rs. 951 crore, which is to be funded by equity of Rs. 138 crore, term loan of Rs. 405.95 crore and NHAI grant of Rs. 406.54 crore. Key financial indicators Key financial indicators are not applicable as HANHPL is a project stage company. About the guarantor H.G. Infra Engineering Limited was incorporated in 2003 by Mr. Hodal Singh Choudhary, Mr. Girish Pal Choudhary, Mr. Vijendra Singh Choudhary and Mr. Harendra Singh Choudhary in Jodhpur, Rajasthan. It is primarily involved in infrastructure development and construction of roads and highways across Rajasthan, Uttar Pradesh, Haryana, Maharashtra and Goa. Over the last few years, it diversified into the construction of water distribution projects. In FY2018, the company successfully concluded its IPO of equity shares. HGIEL is accredited with AA class status by the Public Works Department (PWD) of Government of Rajasthan (GOR) and is registered as SS class contractor in Military Engineers Services (MES). For detailed rating rationale on H.G. Infra Engineering Ltd, please click here 3 Key financial indicators (audited) - Standalone FY2018 FY2019 Operating Income (Rs. crore) 1,393 2,010 PAT (Rs. crore) 84 124 OPBDIT/ OI (%) 14.9% 15.1% RoCE (%) 24.4% 24.5% Total Debt/ TNW (times) 0.8 0.6 Total Debt/ OPBDIT (times) 2.0 1.3 Interest Coverage (times) 5.2 6.2 DSCR (times) 2.0 1.6 Status of non-cooperation with previous CRA: Not applicable Any other information: None Rating history for last three years Chronology of Rating History for the past 3 Current Rating (FY2020) years Amount Date &Rating Date & Rating Date & Rating Date & Rating Rated Amount (FY2020) in FY2019 in FY2018 in FY2017 (Rs. Outstanding December 20, - Instrument Type crore) (Rs.crore) 2019 - - 1 Term Loan Long- 405.95 NIL [ICRA]A (CE) - - - Term (Stable) 2 Bank Short- (95.21) - [ICRA]A1 (CE) - - - Guarantee* Term * interchangeable with term loan Complexity level of the rated instrument ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in 4 Annexure-1: Instrument details Date of Amount Issuance / Coupon Maturity Rated Current Rating and ISIN No Instrument Name Sanction Rate Date (Rs. crore) Outlook September NA Term Loan 10.05% -* 405.95 [ICRA]A(CE) (Stable) 2019 NA Bank Guarantee - - - (95.21) [ICRA]A1 (CE) Source: HANHPL * maturity will be finalised based on declaration of appointed date. Annexure-2: List of entities considered for consolidated analysis Ownership Company Name Consolidation Approach by HGIEL H.G. Infra Engineering Ltd - Parent Company of HANHPL Gurgaon Sohna Highway Private Limited 100.00% Full Consolidation H.G. AteliNarnaul Highway Private Limited 100.00% Full Consolidation HGIEPL - Colossal JV 70.00% Proportionate Consolidation HGIEPL - Ranjit JV 30.00% Proportionate Consolidation HGIEPL - MGCPL JV 30.00% Proportionate Consolidation HGIEPL - RPS JV 51.00% Proportionate Consolidation TPL - HGIEPL JV 26.00% Equity Method Source: HANHPL 5 ANALYST CONTACTS K. Ravichandran Ankit Patel +91 44 4596 4301 +91 79 4027 1509 [email protected] [email protected] Ravish Mehta +91 79 4027 1522 [email protected] RELATIONSHIP CONTACT Jayanta Chatterjee +91 80 4332 6401 [email protected] MEDIA AND PUBLIC RELATIONS CONTACT Ms.