Pune Solapur Expressways Private Limited
Total Page：16
File Type：pdf, Size：1020Kb
Pune Solapur Expressways Private Limited Amount Rating Action (Rs. Crore) October 2016 Non-Convertible 787.81 [ICRA]A(SO) (stable) Reaffirmed Debentures Term Loan facility 200.00 [ICRA]A(SO) (stable) Reaffirmed Total 987.81 ICRA has re-affirmed the long-term rating to the Rs. 787.81 crore Non-Convertible Debentures (NCD) and the Rs. 200 crore term loan facility (including overdraft sub-limit of Rs. 100 crore ) of Pune Solapur Expressways Private Limited (PSEPL) at [ICRA]A(SO) (pronounced ICRA A Structured Obligation). The outlook on the long- term rating is Stable. The reaffirmation of rating continues to factor in the operational status of PSEPL’s road project with a track record1 of toll collections of more than three years. The traffic grew at a CAGR of 5.6% during FY2014-FY2016 (4.8% at toll plaza 1 (Patas) and 6.4% at toll plaza 2 (Indapur)). During Q4FY2016, sand mining at Bhima river was banned which led to decline in movement of sand and construction material carrying trucks & MAVs during last six months. As a result, in H1 FY2017, MAV segment witnessed de-growth of 9% at toll plaza 1 and de- growth of 4% at toll plaza 2; however, healthy growth in passenger segment compensated for the fall in MAV segment to an extent. Overall, in terms of PCUs, traffic grew by around 1.6% (declined by 0.1% at Patas toll plaza whereas increased by 3.7% at Indapur toll plaza) during H1 FY2017. As per the management discussion, the sand mining is expected to be resumed by December 2016 post the auction of mines after which the MAV traffic is expected to improve. The rating favorably factors in reduction in interest rate by 75 bps with effect from July 2016 and the importance of the project stretch, low alternate route risk with minimal toll leakages. Further, the rating takes support from the strong profile of the sponsors – TRIL Roads Private Limited {a 100% subsidiary of Tata Realty and Infrastructure Limited (TRIL, rated [ICRA]A1+)} and Atlantia SPA (Atlantia; rated Baa1 stable by Moody’s). Additionally, the presence of structural features (benefit of various reserves, mandatory prepayment, escrow mechanism, cashflow waterfall, cashtrap triggers etc.) and legal provisions provide credit support to the proposed NCDs. Notwithstanding the track record of toll collections, the project remains exposed to risks inherent in BOT (Toll) road projects including risks arising from political acceptability of rate hikes linked to WPI over the concession period and development/improvement of alternate routes and likelihood of toll leakages, though the existing alternate routes are either longer or are in poor condition and therefore poses low risk of traffic diversion. Given the WPI linked escalation in toll rates, negative WPI for December 2015 has led to lower than anticipated growth in toll rates during FY2017 (effective from April 1, 2016), which besides impacting the revenue growth in FY2017 will also have a cascading affect on future toll rates. With the rising inflation rates now, ICRA expects the toll rates to increase in the range of 3.5-3.7% during FY2018. Further, the rating would be sensitive to movement in interest rate owing to variable interest rate with option of spread reset and ability of the company to manage routine and periodic maintenance expenses within the budgeted levels. Going forward, trends in traffic growth rates and movement in WPI (for toll rate hike) will remain key rating sensitivities. Any reduction in either of them will have an adverse impact on toll collections. Further, ability of the company to manage routine and periodic maintenance expenses within the budgeted levels remains critical in the absence of shortfall undertaking from sponsor. However, the presence of contingency and critical reserves (as discussed below under Transaction Structure) provides comfort in the event of unexpected rise in expenses. Transaction Structure The total debt amount is Rs 987.81 crore consisting of NCD of Rs. 787.81 crore (senior Series A NCDs of Rs. 716.25 crore and subordinate Series B NCDs of Rs. 71.56 crore) and Term Loan of Rs. 200 crore). The term loan facility proposed would have an Overdraft sub-limit of Rs. 100 crore. 1 Partial tolling commenced from Feb, 2013 PSEPL has opened an Escrow Account (exclusively charged to the Security/ Debenture Trustee) with the Escrow Bank. All project cash inflows (including all receivables from NHAI under the Concession Agreement) are routed through the Escrow Account. The proceeds lying in the Escrow Account during the concession period are utilised as per the cash flow waterfall mechanism captured in the transaction documents. The cash flow waterfall incorporates adequate provision to be carved out of the inflows for meeting O&M and major maintenance expenses. The NCDs have been supported by a funded Debt Service Reserve Account (DSRA) to an extent of subsequent quarter’s debt servicing obligations falling due at any point of time. Separate DSRA has been created for Senior and Subordinate debt. DSRA can be utilised only for meeting shortfall in servicing the senior/ subordinate debt. In addition, Rs. 20 crore of contingency reserve (funded from issuance) and Rs. 22.5 crore of critical reserve (would be created from surplus project cashflows) can be utilised for servicing the senior/ subordinate debt and for meeting any expense related payment. Further, 50% of the surplus funds lying in the Borrower Account would be paid out to the senior debt holders and subordinate debt holders on a pro- rata basis subject to compliance of Supplementary Escrow Agreement terms. Accordingly, all future principal payouts on both the senior and subordinate debt would be reduced proportionately. All reserves (except Debt Service Reserve Account) and surplus funds lying in the Borrower Account are credited in the Overdraft Account to reduce negative carry. However, OD facility would be utilised (to the extent of unutilised limits) to again fund the various reserve accounts, whenever required. Rating Methodology The issuer is an SPV with toll collections being the single key source of revenue for meeting the debt service obligations. ICRA notes that the toll collections are strongly linked with GDP growth (due to the correlation of GDP growth with commercial traffic growth rates) and movement in WPI (for toll rate hike); any reduction in either of them will have an adverse impact on toll collections. Thus, in assessing the adequacy of cashflows for meeting the debt service obligations, the key variables are the toll collections which is a function of traffic and toll rates linked to WPI and the O&M expenses (both regular as well as periodic). Also, the NCD/ Term Loan covenants ensure that the company will not raise any further external debt. ICRA derives comfort from the experience of TRPL/ TRIL in project management. Although the MM cost assumptions are lower than ICRA’s benchmark figures for MM, presence of contingency and critical reserves provide some comfort in the event of unexpected rise in expenses. Additionally, the DSRA provision equivalent of one quarter debt servicing obligation was taken into account to meet any shortfall in debt servicing as a result of lower than expected toll collections. About the Company Pune Solapur Expressways Private Limited (PSEPL) is an SPV promoted by Tata Realty And Infrastructure Limited (TRIL; 50% stake in PSEPL) and Atlantia SPA (50%) for four-laning of the existing Two-lane Pune- Solapur section of NH-65 (earlier NH-9) from km 40.00 to km 144.40 and construction of Indapur-bypass in the State of Maharashtra (total length: 110 km) on Design, Build, Operate, Finance and Transfer (DBFOT) Toll basis with a concession period of 21 years from the appointment date of November 16, 2009 to November 15, 2030 including a construction period of 910 days. The actual project cost is Rs.1391.49 crore which also includes CWIP of Rs.13.79 crore. Around 84 km (including 7.2 km bypass) of stretch was completed by January 28, 2013 and provisional completion certificate has been issued. Partial tolling commenced from February 4, 2013. Subsequently, the remaining 26 km stretch was completed by January 28, 2015 and final completion certification has been issued after excluding 0.2 km of service road and median strip along 4 km stretch for which RoW was not made available by NHAI. About TRIL Tata Realty and Infrastructure Limited (TRIL), a 100% subsidiary of Tata Sons Ltd. (TSL, rated [ICRA]AAA (stable)/[ICRA]A1+), was incorporated in March 2, 2007, for undertaking various infrastructure and real estate projects by establishing special purpose vehicles (SPV). TRIL has invested directly in the real estate projects and through holding companies in roads and urban transport projects. The company’s portfolio comprises five real estate projects (of which three are operational), two road projects (an operational and a Greenfield project) and two ropeway project currently under implementation. About Atlantia Atlantia S.p.A. is the holding company for a group active in the infrastructure sector. In Italy, the company owns 100% of Autostrade per l'Italia S.p.A. (Baa1 stable), the country's largest operator of tolled motorways, which together with its subsidiaries, manages a network of 3,020 km of motorways under long-term concession agreements granted by the Italian government. ASPI also holds majority stakes in a number of toll road concessions in Brazil, Chile and Poland. In addition to toll road activities, which at present account for approximately 86% of the group's EBITDA, Atlantia has a presence in the airport sector. Following the merger of Gemina S.p.A. into Atlantia, the company owns Aeroporti di Roma S.p.A. (Baa1 stable), the concessionaire for the Rome airport system.