IRB MP Expressway Private Limited: [ICRA]A+ (Stable) Assigned

August 26, 2020

IRB MP Expressway Private Limited: [ICRA]A+ (Stable) assigned

Summary of rating action Current Rated Amount Instrument* Rating Action (Rs. crore) Fund Based – Term Loan 6610.00 [ICRA]A+ (Stable); Assigned Total 6610.00 *Instrument details are provided in Annexure-1

Rationale The assigned rating factors in the favorable location of IRB MP Expressway Private Limited (IMPEPL), criticality of the project stretch connecting Mumbai and Pune, two major metropolitan cities in Maharashtra with an established traffic density, growth rates and IRB’s long tolling track record (of new Mumbai-Pune stretch and NH-4) of more than 13 years. The new Mumbai-Pune stretch, which accounts for 75% of IMPEPL toll collections, witnessed healthy growth in traffic at a CAGR of 8.54% in PCU terms during FY2008-FY2019 - primarily driven by growth in passenger vehicle traffic. The toll collection rights for both the stretches - the new Mumbai-Pune as well as NH-4 - was with Mumbai Pune Expressway Limited (MPEL), an SPV promoted by the Maharashtra State Road Development Corporation Limited (MSRDC) for the period August 10, 2019 – February 29, 2020. The overall growth in toll collections for FY2020 stood at 6.7%1 (tolled by a different contractor under MSRDC prior to March 1, 2020). The rating also derives comfort from the presence of structural features such as benefit of the debt service reserve account (DSRA) equivalent to one quarter of the debt servicing obligation, a tightly defined escrow mechanism, right to accelerate2 mechanism and restricted payment covenant with lock up DSCR of 1.2 times. The rating factors in the strong profile of the sponsor – IRB Infrastructure Developers Limited (IRB), an infrastructure development and construction company in India, with extensive experience in the roads and highways sector. The sponsor has provided an undertaking that in case of any shortfall in internal accruals of the project, sponsor contribution shall be increased to that extent for funding the total consideration of Rs. 8,682 crore. Based on toll collections up to December 31, 2020 (testing date), in case of an imminent shortfall in internal accruals for meeting the sub-concession fee payable on March 01, 2021, the sponsor shall arrange for the requisite infusion of additional funds to meet such shortfall within 10 days from the testing date. Notwithstanding the importance of the project stretch, low alternate route risk and established willingness of the users to pay toll, the project remains exposed to risks inherent in the BOT (Toll) road projects, including risks arising from development/improvement of alternate routes. On account of the COVID pandemic and the subsequent lockdown imposed throughout the country, tolling was suspended from March 26, 2020 till April 19, 2020. Further, the Government of Maharashtra imposed restrictions on inter district movement between Mumbai and Pune as these cities are major COVID hot spots. As a result, the vehicular movement remained constrained on IMPEPL. As a result, the ramp up in toll collections has been gradual and reached 81%3 of the pre-COVID levels in July 2020. Any slower-than-expected ramp up in toll collections from hereon would necessitate higher fund infusion from sponsors to plug the shortfall in

1 Based on the rates as per the toll contract awarded by MSRDC; the actual toll collections for FY2020 are not available

2 Surplus cash in excess of DSCR level of 1.2 times can be used for prepayment of debt

3 Includes toll hike of 18% and 16% on New Mumbai-Pune Expressway and NH4 respectively with effect from April 1, 2020

internal accruals as per the base case plan. ICRA notes that the concessioning authority – MPEL had compensated IMPEPL for the loss in toll collections during the 25-day toll suspension period; the company has received compensation to the tune of Rs. 71 crore which has been adjusted from the interest on concession fee payable to MPEL. Further, there will also be an extension of the concession period on account of force majeure event in the range of three to six months depending on the overall impact of covid-19 on toll collections. The rating remains sensitive to movement in interest rate owing to the variable interest rate and the ability of the company to manage routine and periodic maintenance expenses within the budgeted levels. While the debt covenants do not stipulate multi-year buildup of major maintenance reserve, the annual expenditure towards MM is expected to be met through the operational cashflows; fixed price contract with O&M contractor - IRB and adequacy in internal accruals to fund the same provide some comfort. The rating also remains constrained on account of the leveraged transaction structure with total consideration of Rs. 8,682 crore, funded through debt of Rs. 6610 crore (76% of total), sponsor contribution of Rs. 1,438 crore (17%) and balance Rs. 634 crore through internal accruals (7%).

The Stable outlook on the [ICRA]A+ rating reflects ICRA’s opinion that IMPEPL will continue to benefit from the established traffic density, and the strong profile of the sponsor, IRB and its long track record of operating the asset.

Key rating drivers and their description

Credit strengths Long tolling track record with established traffic density - The stretch has a long tolling track record of more than 13 years with established traffic density and growth rates. The overall growth in toll collections for FY2020 stood at 6.7% (tolled by a different contractor under MSRDC prior to March 1, 2020).

Presence of structural features – The rating derives comfort from the presence of structural features such as benefit of the DSRA equivalent to one quarter of the debt servicing obligation, a tightly defined escrow mechanism, right to accelerate mechanism (surplus cash in excess of DSCR level of 1.2 times can be used for prepayment of debt) and restricted payment covenant with lock up DSCR of 1.2 times.

Importance of project stretch and low alternate route risk – The New Mumbai-Pune Expressway and National Highway 4 are important stretches as these are the only roadways that connect Mumbai and Pune, two major metropolitan cities in Maharashtra. The project stretch has a low alternate route risk and established willingness of users to pay toll. While the Government of Maharashtra intends to construct the Hyperloop between Mumbai – Pune, which is expected to reduce the travel time to 25 minutes and can pose a threat in the future; however, given that the project is currently under planning stage, timelines for implementation are not finalised yet. Considering the short concession period of 10 years, it is unlikely that the proposed Hyperloop will have any impact on the project traffic.

Strong profile of the sponsor – IMPEPL is a subsidiary of IRB, an infrastructure development and construction company in India, with extensive experience in the roads and highways sector. The sponsor has provided an undertaking that in case of any shortfall in internal accruals of the project, sponsor contribution shall be increased to that extent for funding the total consideration of Rs. 8,682 crore.

Credit challenges Impact of COVID - On account of the COVID pandemic and the subsequent lockdown imposed throughout the country, tolling was suspended from March 26, 2020 till April 19, 2020. Further, the Government of Maharashtra imposed restrictions on inter district movement between Mumbai and Pune as these cities are major COVID hot spots. As a result, the vehicular movement remained constrained on IMPEPL. As a result, the ramp up in toll collections has been gradual and have reached 81% of the pre-COVID levels in July 2020. Any slower-than-expected ramp up in toll collections from

hereon would necessitate higher fund infusion from sponsors to plug the shortfall in internal accruals as per the base case plan. Based on toll collections up to December 31, 2020 (testing date), in case of an imminent shortfall in internal accruals for meeting the sub-concession fee payable on March 01, 2021, the sponsor shall arrange for the requisite infusion of additional funds to meet such shortfall within 10 days from the testing date.

Leveraged transaction structure and interest rate risk- The rating remains constrained on account of the leveraged transaction structure with total consideration of Rs. 8,682 crore, funded through debt of Rs. 6610 crore (76% of total), sponsor contribution of Rs. 1,438 crore (17%) and balance Rs. 634 crore through internal accruals (7%). Further, the project’s cash flows and profitability remain exposed to the interest rate risk due to the floating nature of the interest rate.

Risks inherent in BOT (Toll) road projects - Notwithstanding the importance of the project stretch, low alternate route risk and established willingness of the users to pay toll, the project remains exposed to risks inherent in the BOT (Toll) road projects, including risks arising from development/improvement of alternate routes. Going forward, trends in traffic growth rates will remain key rating sensitivities. Any moderation in traffic growth rates from anticipated levels could lead to weakened project metrics.

Company’s ability to manage routine and periodic maintenance expenses within the budgeted levels - While the debt covenants do not stipulate multi-year buildup of major maintenance reserve, the annual expenditure towards MM is expected to be met through the operational cashflows; fixed price contract with O&M contractor - IRB and adequacy in internal accruals to fund the same provide some comfort. IMPEPL’s ability to manage routine and periodic maintenance expenses within the budgeted levels remains critical from a credit perspective.

Liquidity position: Adequate IMPEPL’s liquidity position is adequate with DSRA equivalent to one quarter of principal plus interest obligations which currently stands at Rs. 124 crore. The debt repayment of Rs. 22.1 crore in FY2021 and can be comfortably met from the cash flow from operations.

Rating sensitivities Positive triggers – The rating can be upgraded in case if the company witnesses higher than envisaged growth in traffic resulting in improvement in LLCR beyond 1.4 times on a sustained basis.

Negative triggers – Negative pressure on the rating could arise if the ramp up in toll collections is slower than expected and/or if the company incurs higher-than-anticipated O&M expense (routine and major maintenance), thereby necessitating higher fund infusion from sponsors to plug the shortfall in internal accruals to meet the concession fee obligations as per the base case plan and/or if there are any material related party transactions.

Analytical approach

Analytical Approach Comments Corporate Credit Rating Methodology Applicable Rating Methodologies Rating Methodology for BOT (Toll) Roads Parent/Group Support Not Applicable Consolidation/Standalone Standalone

About the company Incorporated in 2020, IRB MP Expressway Private Limited (IMPEPL) is an SPV promoted by IRB Infrastructure Developers Limited for operation and maintenance of two parallel roads from Mumbai to Pune; a 111-km stretch on the National Highway 4 (NH4, 4-lane tolled since August 2004) and the 95-km new Mumbai-Pune Expressway (6-lane, tolled since September 2006) in the state of Maharashtra on an operate, maintain and transfer (OMT) basis.

On February 25, 2020, the Mumbai-Pune Expressway Limited (MPEL) through a tendering process, awarded the contract of tolling, operation and maintenance of the National Highway 4 and new Mumbai-Pune Expressway highway to IMPEPL, which has been awarded the concession for a period of 10 years 2 months [i.e. from March 01, 2020 (commencement date) to April 30, 2030]. As per the terms of the transaction, IMPEPL is required to pay a consideration of Rs. 8,262 crore to MPEL for acquiring the toll collection rights. Of the total consideration payable to MPEL, Rs.6500 crore has to be paid upfront by June 19, 2020 (appointed date), which has already been paid by IMPEPL, followed by a staggered payment of Rs. 850 crore in the second year (by March 01, 2021), Rs. 850 crore in the third year (by March 01, 2022), Rs. 62 crore in the fourth year (by March 01, 2023).

Key financial indicators (audited) FY2020* Operating Income (Rs. crore) 62.1 PAT (Rs. crore) -0.6 OPBDIT/OI (%) 99.4% PAT/OI (%) -1.0%

Total Outside Liabilities/Tangible Net Worth (times) 100.2 Total Debt/OPBDIT (times) - Interest Coverage (times) 1.7 Source: IMPEPL; * The SPV commenced operations from March 1, 2020

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years Current Rating (FY2021) Rating History for the Past 3 Years Instrument Amount Amount Rating FY2020 FY2019 FY2018 Type Rated Outstanding 26-Aug-2020 - - - 1 Term Loan Long Term 6610.0 * [ICRA]A+ (Stable) - - - *IMPEPL has drawn down Rs. 5464 crore of term loan as on July 30, 2020 Amount in Rs. crore

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

Annexure-1: Instrument details ISIN Instrument Date of Issuance Coupon Rate Maturity Amount Current Rating Name / Sanction Date Rated and Outlook (Rs. crore) NA Term Loan Jun-2020 NA Feb-2029 6610.00 [ICRA]A+(Stable) Source: IMPEPL

Analyst Contacts Shubham Jain Rajeshwar Burla +91 124 4545 306 +91 40 4067 6527 [email protected] [email protected]

Shreyans Talawat +91 22 6169 3368 [email protected]

Relationship Contact L Shivakumar 022 6169 3304 [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]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

ICRA Limited

Corporate Office Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300 Email: [email protected] Website: www.icra.in

Registered Office 1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50

Branches

Mumbai + (91 22) 24331046/53/62/74/86/87 Chennai + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Kolkata + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Bangalore + (91 80) 2559 7401/4049 Ahmedabad+ (91 79) 2658 4924/5049/2008 Hyderabad + (91 40) 2373 5061/7251 Pune + (91 20) 2556 0194/ 6606 9999

Contents may be used freely with due acknowledgement to ICRA.

ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All i nformation contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents