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Moradabad Bareilly Expressway Limited October 01, 2018 Ratings Amount Facilities/Instruments Rating1 Rating Action (Rs. crore) 354.93 Non-Convertible Debenture CARE A; Stable (Rupees three hundred fifty four Reaffirmed issue (Single A; Outlook:Stable) crore and ninety three lakh only) 1356.49 (Rupees one thousand three CARE A; Stable Long-term Facilities Reaffirmed hundred fifty six crore and forty (Single A; Outlook:Stable) nine lakh only) 1711.42 (Rupees one thousand seven Total hundred eleven crore and forty two lakh only) Details of instruments/facilities in Annexure-1
Detailed Rationale & Key Rating Drivers The reaffirmation of ratings assigned to the Non-Convertible Debentures (NCDs) and Bank facilities of Moradabad Bareilly Expressway Limited (MBEL) continues to take into account improvement in toll collection in FY18 and Q1FY19 on year-on- year basis along with availability of undisbursed limits from the refinanced facility towards maintaining Debt service reserve account (DSRA) and Major Maintenance Reserve Account (MMRA) (for the first cycle) thereby imparting liquidity comfort. The rating also captures the advanced stage of project completion, thereby offsetting any construction related risks and consequent cost overrun. The rating also favorably factors in the Structured Payment Mechanism (SPM), staggered repayment structure and comfortable debt coverage indicators. The aforesaid rating strengths are however tempered by the moderation in the credit profile of the sponsor i.e. IL&FS Transportation Networks Limited (ITNL, rated ‘CARE D’), revenue risks associated with the toll-based project, delayed ramp-up of traffic volumes with initial traffic volumes observed to be lower as compared to earlier estimates (predominantly due to non-completion of adjacent stretch) and exposure to interest rate risk on significant portion of refinanced senior project debt which is subject to periodic reset in rates. Achievement of envisaged toll collection as well as movement in the interest rates affecting the debt coverage indicators are the key rating sensitivities. Any deviation from the adherence to the provision pertaining to DSRA/MMRA creation and change in waterfall mechanism, if any will also be key rating sensitivities.
Detailed description of the key rating drivers Key Rating Strengths Improvement in toll revenues albeit, traffic risk associated with toll based nature of projects: The daily toll collection had improved significantly from Rs. 49 lakhs per day in FY17 to Rs. 54 lakhs per day in FY18 and Rs. 58 lakhs per day in Q1FY19. Out of the total traffic in FY18, ~60% comprises of passenger vehicle traffic and ~40% is commercial vehicle traffic. The toll-based nature of the four-lane stretch makes the company susceptible to the uncertain traffic flow and consequent revenue fluctuations. The section of project road passes through the Moradabad, Rampur and Bareilly. These districts have very strong interaction with the other parts of UP. Besides intra state traffic of UP, the project road also serves interstate traffic originated from Delhi, Haryana, Uttarakhand and other parts of India. However, MBEL has witnessed a steep deviation in traffic movement from its initial period of commissioning which is largely attributed to the non-completion of adjacent stretch from Bareilly to Sitapur, impacting the feeder traffic onto MBEL’s project corridor.
Minimal Project implementation risk: The project has been provisionally declared fit for commercial operation from January 06, 2015 and received a second PCOD certificate on November 4, 2015. MBEL started collecting toll from January 07, 2015. As on March 31, 2018, MBEL had achieved 98.20% physical completion and expects the remaining work to be completed in FY19. With almost entire main carriageway complete, the project implementation risk is perceived low on the unexecuted stretch of the highway.
Moderate O&M and MME Risk: The company had entered into a agreement on March 31, 2017 with ITNL for the fixed price O&M and MMR with annual escalation of 5% p.a. The O&M expenses would be Rs.16.01 crore per year with annual escalation of 5% p.a., which will be sufficiently met via cash flows from the project. The first major maintenance is due in
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FY21 for which MBEL already has sanctioned Rs. 90 crore of term loan and the same would be availed in FY21. After this, company is expected to create a provision for future MMR on yearly basis from the cash flows of the project.
Structured Payment Mechanism provides comfort from credit perspective All the receipts of MBEL are transferred to an escrow account which is monitored by the lenders. The structured payment mechanism is as under: 1. Statutory Dues Account; 2. Operation and Maintenance Fund Account; 3. Concession Fees Account; 4. Senior Debt Payment Account; 5. Authority Damages and Payments Account; 6. Sub Debt Payment Account; 7. Debenture Redemption Reserve Account; 8. Debt Service Reserve Account; 9. Major Maintenance Reserve Account; 10. Surplus Account; 11. Distribution Account.
This allows all monitored operational expenses to be carried out followed by debt servicing of loans. The waterfall mechanism also gives priority to replenish DSRA and MMRA accounts, if needed before transferring to surplus and distribution account. Therefore, these structural features provide additional comfort from credit perspective. Any change in the structured payment mechanism will remain a key rating sensitivity.
Key Rating Weaknesses Weakened credit profile of Sponsor i.e. ITNL: The credit rating of ITNL has been revised to CARE D due to delay in servicing of its debt obligations. The liquidity profile of the group continues to be under stress on account of delay in raising funds from the promoters’ and impending debt payments. Further, the company’s plans to raise funds from promoters are yet to be finalized.
Interest rate risk - The project is exposed to interest rate risks on the senior and sub debt bank facilities during the life of the concession period. The interest rates shall be reset annually on both the Senior debt and the sub debt. However, toll rate shall be increased annually, without compounding, by 3% from April 1, 2008. In addition to fixed annual revision, toll charge will be revised annually to account for inflation, which shall be restricted to 40% of variation in WPI. The fructification of the traffic flow as estimated will significantly impact the interest rate risk.
Analytical approach: Standalone
Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition Rating Methodology: Factoring Linkages in Ratings Rating Methodology - Infrastructure Sector Ratings Rating Methodology-Toll Road projects Financial ratios – Non-Financial Sector
About the Company Incorporated on January 11, 2011, MBEL was originally a wholly owned subsidiary of ITNL. However, ITNL has divested a minority shareholding of 14.5% in MBEL as on 29th September 2017 and currently holds 84.5% of MBEL’s shares. It is a special purpose vehicle (SPV) engaged in development, operations of widening of the existing two-lane to four-lane on the Moradabad-Bareilly Section of NH-24 from km 148 to km 262 for a total project length of 121 km in the State of Uttar Pradesh under NHDP Phase III on Design, Build, Finance, Operate and Transfer basis. The project also involved toll collection on the existing two-lane road stretch.
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Brief Financials- (Rs. crore) FY17 (A) FY18 (A) Total operating income 315.74 300.08 - Toll Income 168.81 196.71 PBILDT 244.35 256.47 PAT -85.54 -92.64 Interest coverage (times) 0.83 0.83 Overall gearing 5.30 6.81 A: Audited; Financials classified as per CARE 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
Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.
Analyst Contact: Name : Viren Shah Tel : 022 6754 3656 Board : 022 6753 3456 Email : [email protected]
**For detailed Rationale Report and subscription information, please contact us at www.careratings.com
About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.
Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.
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Annexure-1: Details of Instruments/Facilities
Name of the Date of Coupon Maturity Size of the Issue Rating assigned Instrument Issuance Rate Date (Rs. crore) along with Rating Outlook Fund-based - LT- - - March-2018 1356.49 CARE A; Stable Term Loan Debentures-Non March 31, 2017 9.20% September 30, 354.93 CARE A; Stable Convertible 2033 Debentures
Annexure-2: Rating History of last three years
Sr. Name of the Current Ratings Rating history No. Instrument/Bank Type Amount Rating Date(s) & Date(s) & Date(s) & Date(s) & Facilities Outstanding Rating(s) Rating(s) assigned Rating(s) Rating(s) (Rs. crore) assigned in in 2017-2018 assigned in assigned in 2018-2019 2016-2017 2015-2016 1. Fund-based - LT-Term LT - - - 1)Withdrawn 1)CARE BBB- 1)CARE BBB- Loan (05-Oct-17) (03-Aug-16) (17-Jul-15)
2. Debentures-Non LT 354.93 CARE A; - 1)CARE A; Stable - - Convertible Debentures Stable (11-Oct-17)
3. Fund-based - LT-Term LT 1356.49 CARE A; - 1)CARE A; Stable - - Loan Stable (11-Oct-17)
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