Press Release Moradabad Bareilly Expressway Limited

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Moradabad Bareilly Expressway Limited June 25, 2020 Ratings Facilities/Instruments Amount Rating1 Rating Action (Rs. crore) Long term Bank Facilities 1,206.10 CARE B+; Issuer not cooperating; Revised from CARE ISSUER NOT COOPERATING* D; Issuer Not Cooperating (Single D; Issuer (Single B plus; Not Cooperating) ISSUER NOT COOPERATING*) Based on best available information Non-Convertible 354.54 CARE B+; Issuer not cooperating; Revised from CARE Debentures (NCD) ISSUER NOT COOPERATING* D; Issuer Not Cooperating (Single D; Issuer (Single B plus; Not Cooperating) ISSUER NOT COOPERATING*) Based on best available information Total 1,560.64 (Rs. One thousand five hundred sixty crore and sixty four lakh only) Details of instruments/facilities in Annexure-1

Detailed Rationale & Key Rating Drivers CARE had, vide its press release dated April 04, 2019, placed the ratings of Moradabad Bareilly Expressway Ltd. (MBEL) under the ‘issuer non-cooperating’ category as MBEL had not paid the surveillance fees for the rating exercise as agreed to in its Rating Agreement. Although MBEL has submitted the required information for rating review, MBEL continues to be non- cooperative despite repeated requests for adherence to Rating Agreement clauses. Resultantly it continues to be under “Issuer non-cooperating” category in line with CARE’s extant policy in respect of non-cooperation by Issuer. CARE has reviewed the rating on the basis of the information as submitted by the Company.

Users of this rating (including investors, lenders and the public at large) are hence requested to exercise caution while using the above rating(s). Timely debt servicing of the aforementioned debt has been confirmed by all the Lenders and NCD Investors since August 2019 except on two occasions which were confirmed by lenders as due to technical reasons.

The revision in the long term ratings assigned to bank facilities and Non-Convertible Debentures (NCDs) takes into consideration the timely debt servicing by the Company since past 10 months from the regular cash flow generation in the project without any additional fund infusion by lenders or sponsor. MBEL had defaulted on payment due on Feb 28, 2019, subsequent to which the bank facilities and NCDs for MBEL was placed in default category. CARE also derives strength from classification of the entity in to green category by NCLAT, project completion; thereby offsetting any construction related risks and consequent cost overrun, fixed lower interest rate @ 8.75% p.a. for 3 years, moderate liquidity position with cash and cash equivalent being ~Rs 65 crore as on May 31, 2020 (including Rs 31 crore towards DSRA) and improvement in toll revenues by ~11% and ~8.4% during FY 2019 and FY 2020 respectively. Availability of undisbursed limits from lenders towards maintaining Debt service reserve account (DSRA) and Major Maintenance Reserve Account (MMRA) (for the first cycle) although impart liquidity comfort yet shall lead to further debt thereby impacting the gearing levels and debt coverage indicators. The aforesaid rating strengths are however tempered by the revenue risks associated with the toll-based project, weak profile of Sponsor and O&M contractor “ITNL being CARE D; INC”, no fixed price contract for Major Maintenance activity exposing the company to price fluctuation and poor maintenance of the project stretch which may incur damages from the Authority if not maintained as per the stipulated standards. The rating factors in the impact of reduction in traffic due to temporary suspension of toll plazas across the country by NHAI on account of Covid-19. CARE believes that considering the toll suspension and the travel restrictions due to subsequent lock down, the toll collection for FY 2021 would get adversely impacted as compared to previous year. However, ramping up of traffic ramp up post Covid to normal levels would be key rating sensitivity. Imposition of any damages by NHAI or ability of the Company to meet the budgeted MM expenses will continue to be key monitorables.

1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications *Issuer did not cooperate; Based on best available information 1 CARE Ratings Limited

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Detailed description of the key rating drivers Key Rating Strengths Reclassified as Green Entity with no change in repayment schedule of Secured Lenders

National Company Law Appellate Tribunal (NCLAT) vide its order dated October 15, 2018, had ordered stay on: (a) Recovery proceedings against IL&FS or any of its 348 group companies in the event of their default in debt repayment; (b) Enforcement of security interest by a bank/financial institution in order to recover loan amount which have been borrowed by IL&FS or any of its 348 group companies; (c) Creditors’ action of seeking acceleration of debt repayment or premature withdrawal of any loan or other financial facility; (d) Right of the banks/financial institutions to exercise lien in respect of any deposits of IL&FS or any of its 348 group companies which is lying with such banks/financial institutions against any dues outstanding from IL&FS or any of its 348 group companies. Subsequently the Appellate Tribunal, based on the ability of a particular company to repay debt and interest, classified the total debt of IL&FS and its group companies in to three loan categories, Green, Amber and Red. Those able to meet all payment obligations are categorised as ‘green’ while companies able to meet only operational payments and senior secured debt obligations are categorised as ‘amber’. Others are categorised as ‘red’. Keeping in view the financial position and ability of MBEL to service debt, the Loan w.r.t. MBEL was classified under Amber category. In pursuant to NCLAT order dated 12 July 2019, a Master Term Agreement was executed between Rupee Lenders (secured and unsecured), debenture holders, Facility Agent, debenture Trustee, IL&FS Financial Services Ltd. and MBEL on August 31, 2019 to give effect to provisions of binding term sheet. Subsequent to this, debt of MBEL has been classified in to Green category. As per the terms of MTA, after payment of all the dues of secured lenders till July 31, 2019, payments were to be made to settle overdue of operational creditors of MBEL, pay accrued and unpaid interest due to unsecured lenders (IL&FS Group Company Loans) for the period from April 01, 2019 to June 30, 2019 (interest prior to April 01, 2019 would be capitalized) and payment of TDS in respect of unsecured lenders (IL&FS Group Company Loans) for interest on their respective loans till March 31, 2019.

Modification in Secured debt agreement terms leading to - improving cash availability at the company level

The following terms of the secured debt agreements for both NCDs and Rupee Facility have also been amended as per MTA as under: 1) Debt Service Coverage Ratio (DSCR): Ensure maintaining a minimum DSCR of 1.10x to be tested annually w.e.f April 01, 2020 and thereafter based on audited financials every year. DSCR calculation to consider the opening cash balance corresponding to DSCR 1.10x -1.0x of previous financial year (except first testing on April 01, 2020). Opening cash balance to exclude requirement towards DSRA and MMRA. 2) Utilization of surplus funds: Surplus funds shall be utilized for prepaying outstanding of secured lenders and IL&FS group company loans (unsecured loans) in inverse order of maturity. Consent of debenture trustee and facility agent would be required. Further, till final settlement date cash flows of MBEL (including surplus) shall not be used for distribution of dividend to the sponsors. 3) Debt Service Reserve: MBEL to reinstate Debt Service Reserve at 2 months debt servicing obligations for secured lenders and IL&FS group company lenders (interest and instalment falling due in ensuing 2 months) in FY 2021 and 3 months debt servicing obligations for secured lenders and IL&FS group company lenders (interest and instalment falling due in ensuing 3 months) from April 01, 2020 for FY 2021 from project cash flows prior to cash sweep. However, non-maintenance of Debt service reserve amount shall not be an event of default if surplus funds are not available for such top up. If cash sweep is made to any secured lenders or IL&FS group company lenders prior to topping up of Debt service reserve as stipulated, the same shall be an event of default. 4) Applicable interest Rate: Lower fixed coupon rate at 8.75% per annum payable monthly for a period of 3 years (from April 01, 2019 to March 31, 2022) and a floating interest rate not exceeding 9.50% p.a. payable monthly thereafter.

Post capitalization of accrued and unpaid interest till March 31, 2019, the outstanding principal amounts in respect to IL&FS group Company loans as on March 31, 2020 (based on provisional financials for FY 2020 submitted by the Company) stands at Rs 1049.56 crore with repayment due from FY 2021 till FY 3034. However, in the event of insufficient cash flows to discharge amounts which have fallen due to secured lenders, then the cash flows of MBEL shall be utilised first for clearing secured overdue amounts to secured lenders before any payment is made to the IL&FS Group Company lenders.

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Moderate Liquidity position MBEL had signed a settlement agreement on September 18, 2018 with NHAI in full and final settlement in respect of all claims, counter claims and all disputes under concession agreement and matters related thereto with no extension in concession period. As per the Agreement, a net settled amount of Rs 425 crore payable by NHAI was finalized. As informed by Company officials, the amount was subsequently received in the last week of September 2018. As per the provisional financials submitted for FY 2020, as on March 31, 2020, MBEL had cash and cash equivalents amounting to Rs 99.1 crore (out of which Rs 83.66 crore was in the form of FD including Rs 31 crore towards DSRA and remaining as cash or balance with Escrow bank. Considering the surplus cash availability with the Company, no moratorium was sought by MBEL from its lenders due to Covid-19. Due to lower than anticipated toll collection on account of Covid, the surplus cash was utilized for debt servicing of secured and unsecured lenders. The cash and cash equivalent position as on May 31, 2020 is Rs 65.6 crore (including Rs 31 crore in FDs towards DSRA). CARE believes that as no moratorium was sought, MBEL would be eligible to apply for Revenue Shortfall loan (Covid Loan) announced by NHAI. The gross cash accruals expected to be generated during FY 2021 and the surplus liquidity available with MBEL is expected to be sufficient to meet debt servicing of both secured and unsecured lenders in FY 2021.

No implementation risk The project has received completion certificate w.e.f July 30, 2019. Thus, there is no implementation risk in the project.

Improvement in toll revenues albeit, traffic risk associated with toll based nature of projects: Being a toll road, MBEL is associated with inherent traffic fluctuation risk both in terms of volume as well as traffic mix leading to cash flow variability. Based on the information submitted by the Company, the daily toll collection had improved significantly from Rs. 49 lakhs per day in FY17 to Rs. 66 lakhs per day in FY 20. Based on the provisional financials submitted, MBEL earned a total toll income of Rs 237 crores during FY 2020. Further, the toll revenues depicted a growth of 11.02% and 8.42% in FY 2019 and FY 2020 respectively. Out of the total traffic in FY20, ~60% comprises of passenger vehicle traffic and ~40% is commercial vehicle traffic. Traffic growth and toll collection during FY 2020 were adversely impacted on account of temporary suspension of all toll plazas in India by NHAI. However, Toll Operation was resumed on 20th April 2020 after the Government revoked the temporary suspension. Keeping in view the toll suspension and the travel restrictions due to subsequent lock down in the Country during FY 2021 due to Covid -19, the toll collection for FY 2021 is expected to get adversely impacted as compared to previous year. The traffic on the project stretch in May 2020 has been almost 62% of the traffic in the same month last year. Also, the Company has collected ~74% of toll as compared to the toll collection in May last year. 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.

Key Rating Weaknesses Weakened credit profile of Sponsor i.e. ITNL: Rating of main sponsor ITNL continues to be CARE D, INC on account of continuing delays and defaults as confirmed by lenders and disclosures by ITNL on stock exchanges in its debt servicing. IL&FS on December 18, 2018 invited expression of interest for potential acquisition of IL&FS group’s equity stake/interest in certain road assets and businesses including MBEL. Based on the information as submitted by the Company, the bid received for MBEL were lower than the Fair Market Value as determined by two independent valuers appointed by IL&FS Board for the valuation. Since the bid received was lower, the IL&FS Board has rejected the bid. Subsequently, the IL&FS Board has proposed the setting up of an Infrastructure Investment Trust (InvIT) for resolution of ITNL SPVs where either no bid was received or the bid was rejected due to it being lower than the FMV. MBEL is also included in the list of ITNL SPVs being considered for inclusion in the InvIT. It is currently in the process of registration of the InvIT with SEBI. Further as per the terms of Master Term Agreement signed on August 31, 2019, with effect from April 01, 2019, all the obligations of the Sponsor/ IL&FS or any of its affiliates as contained in the Secured debt documents (save and except as set out in the agreement) shall remain suspended for ITNL and IL&FS group.

Exposure to O&M and Major Maintenance risk: Fixed price contract for O&M continues to be with ITNL with a fixed cost of Rs 17.65 cr for FY 21 (i.e. Rs 3.65 lakh per lane Km) with an escalation of 5% p.a. Considering the weak credit profile of the O&M operator, ITNL (CARE D, INC), no comfort from the fixed price contract can be drawn. Elsamex Maintenance Services Ltd (Elsamex, a subsidiary of ITNL) is the sub- contractor for undertaking the O&M activities of ITNL for MBEL.

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With respect to Major Maintenance, MBEL there is no fixed price contract. It has entered in an item rate contract with a group Company, EMSL for undertaking Major Maintenance activity on selected stretches. The Company proposes to continue the Major Maintenance activity by entering in to item based contract on requirement basis. The uncertainty may expose MBEL to price fluctuations going forward. MBEL estimates a total of Rs 91.27 crore towards the first cycle of MM (FY 20 to FY 23. However, with no fixed price contract with a strong O&M contractor in place, the same is open to market price fluctuations.

Delayed and Poor Major Maintenance of the project stretch As per the LIE report for the month of April, 2020, overall physical progress of periodic maintenance work is 39.54% and financial progress is 42.41% as against the planned progress of 100%. LIE has further informed that the MM work was scheduled to commence in the month of February 2019. However, due to deferment in mobilization of machinery and manpower delay of approximately 3 months from the originally envisaged commencement date occurred. The current rate of Physical Progress is also slow which is responsible further delaying the activities as compared to the Planned Progress. The work on the project stretch stopped on March 22, 2020 due to Covid-19, subsequently resumed w.e.f April 20, 2020 with 80% manpower thereafter. However, as per the report proper prescribed safety measures are not being adhered. Further as per IE report (LEA associates) for the month of May 2020, the Concessionaire has not fulfilled the obligations as per schedule K of Concession Agreement (CA) and damages were recommended for default in operating and maintaining the project highway in conformity with the provisions of Concession Agreement. Based on CARE Ratings’ discussion with the company officials, it has been informed that the Company is working on the observations of IE and tackling the areas of concern. Further, no damages have been charged on the Company yet. Continued poor Major Maintenance activity leading to levying of any damages from the Authority would be a key rating monitorable.

Creation of MMRA and part DSRA dependent of additional debt from lenders As per original sanction, MBEL was required to maintain DSRA amounting to interest and instalment for ensuing 6 months. However, the same has been revised in Master Term Agreement. From April 1, 2020, DSRA equivalent to ensuing 3 months’ debt servicing (both interest and instalment) for secured lenders and IL&FS group Company loans would be required to be maintained for FY 2021 from project cash flows prior to cash sweep. Further in case, if sufficient funds are not available to top up then non- maintenance of DSRA will not be considered as Event of Default. As against a requirement of ~Rs 60 crore during FY 2021, DSRA amounting to Rs 31 crore has already been earmarked in the form of FD. However, with respect to the balance requirement, MBEL has undrawn line of credit already sanction in 2017 lying with the lenders amounting to Rs 55 crore for the purpose of creating DSRA. Further, as against the proposed Major Maintenance expense of Rs 91.27 crore, MBEL has an undisbursed limit of Rs 80 crore already sanctioned from existing lenders towards first major maintenance cycle and appropriation toward MMRA would begin from FY 2023 post first cycle of Major Maintenance for the next cycle. The lead Lender has confirmed that the facility is still available with the Company for drawdown. Further, the account is being monitored closely and till the time surplus cash is available with the Company, no disbursement towards MMRA or DSRA would be made. Thus, any delay in disbursement of funds towards major maintenance would impact the major maintenance activity and may attract penalty if the project stretch is not maintained as per the terms of Concession Agreement. Also, additional debt disbursement towards creation of reserves will further increase the gearing on the project.

Analytical approach: Standalone

Applicable Criteria Policy in respect of Non-cooperation by issuer Criteria on assigning ‘outlook’ and ‘credit watch’ to Credit Ratings CARE’s Policy on Default Recognition CARE’s Policy on Curing Period 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 85.5% of MBEL’s shares and balance 14.5% being held by Infiniti Realty opportunities trust. 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

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and Transfer basis for a concession period of 25 years. The project also involved toll collection on the existing two-lane road stretch. Scheduled 4 laning date as per Concession Agreement was 1st June 2013 (appointed date being 4th December 2010). Extension of Time (EOT) was granted for 739 days (without any cost implication and extension in Concession period) till 10th June 2015. Subsequently, PCOD-I was achieved on January 06, 2015 (for 103.52 Km out of 121 km) and PCOD- II was achieved on November 04, 2015 (for additional 15.3Km). Completion certificate has been issued on August 02, 2019 with COD w.e.f. July 30, 2019 (for complete 121km).

Brief Financials (Rs. crore) FY18 (A) FY19 (Prov) FY 20 (Prov) Total operating income 300.08 222.83 244.12 PBILDT 256.47 198.40 218.17 PAT -92.64 -829.53* -85.33 Overall gearing (times) 6.81 -5.54 -4.82-1.03 Interest coverage (times) 0.83 0.62 0.88 A: Audited; Prov: Provisional financials (Last Audited financials pertain to FY 2018). *The losses during FY 2019 is majorly on account of one time provision for impairment amounting to Rs 533.06 crore and claims from NHAI written off amounting to Rs 111.2 crore. Financials classified as per CARE’s internal 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

Annexure-1: Details of Instruments/Facilities

Name of the Date of ISIN Coupon Maturity Size of the Issue Rating assigned along with Instrument Issuance Rate Date (Rs. crore) Rating Outlook Fund-based - LT- - - - 1206.10 CARE B+; ISSUER NOT Term Loan COOPERATING* Issuer not cooperating; Based on best available information Debentures-Non March 31, INE447T07012 8.75% 30-Sep- 354.54 CARE B+; ISSUER NOT Convertible 2017 2033 COOPERATING* Debentures Issuer not cooperating; Based on best available information

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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) & Rating(s) Date(s) & Date(s) & Facilities Outstanding Rating(s) assigned in 2019- Rating(s) Rating(s) (Rs. crore) assigned in 2020 assigned in assigned in 2020-2021 2018-2019 2017-2018 1. Fund-based - LT - - - - - 1)Withdrawn LT-Term Loan (05-Oct-17)

2. Debentures- LT 354.54 CARE B+; - 1)CARE D; 1)CARE D 1)CARE A; Non ISSUER NOT ISSUER NOT (01-Mar-19) Stable Convertible COOPERATING* COOPERATING* 2)CARE BB (11-Oct-17) Debentures Issuer not (04-Apr-19) (Under cooperating; Credit watch Based on best with available Negative information Implications) (30-Jan-19) 3)CARE A (Under Credit watch with Negative Implications) (18-Jan-19) 4)CARE A; Stable (01-Oct-18)

3. Fund-based - LT 1206.10 CARE B+; - 1)CARE D; 1)CARE D 1)CARE A; LT-Term Loan ISSUER NOT ISSUER NOT (01-Mar-19) Stable COOPERATING* COOPERATING* 2)CARE BB (11-Oct-17) Issuer not (04-Apr-19) (Under cooperating; Credit watch Based on best with available Negative information Implications) (30-Jan-19) 3)CARE A (Under Credit watch with Negative Implications) (18-Jan-19) 4)CARE A; Stable (01-Oct-18)

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.

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Analyst Contact Group Head Name - Ms. Rajashree Murkute Group Head Contact no.- 022 – 6837 4474 Group Head Email ID- [email protected]

Relationship Contact Name: Ms. Saikat Roy Contact no. : 022 – 6754 3429 Email ID : [email protected]

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.

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