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 1 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 2 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.