August 08, 2017 L&T - Tollway Limited (L&T - SRTL)

Summary of rated instruments Instrument* Rated Amount Rating Action (Rs. crore)

Term loan 1016.4 [ICRA]BBB (Stable); Reaffirmed Total 1016.4

*Instrument details are provided in Annexure-1

Rating action ICRA has reaffirmed the long-term rating of [ICRA]BBB (pronounced ICRA triple B) to the Rs. 1016.4 crore1 term loans facilities of L&T Sambalpur–Rourkela Tollway Limited (L&T - SRTL). The outlook on the long-term rating is ‘stable’.

Rationale The rating reaffirmation considers the substantial construction progress achieved in the project with physical progress of more than 90% as of June 2017; though the scheduled commercial operating date COD was July 2017, the company is expected to achieve provisional COD with a minor delay mainly due to change of scope with respect to certain structures by the Work department- state government of . The rating also considers the expected savings on the project cost due to engineering, procurement, and construction (EPC) cost savings, which would improve the project returns marginally.

The rating, nevertheless, continues to factor in the uncertainties involved in the estimation of base traffic and future growth rates, especially since the project is in its final construction stages with tolling yet to commence. Any adverse variation with respect to projected traffic, collections or toll rates could result in shortfalls in debt servicing. Nevertheless, ICRA draws comfort from the strong parentage of SRTL and the promoters’ track record of supporting its various project companies.

Key rating drivers

Credit strengths

 Wholly owned subsidiary of L&T Infrastructure Development Projects Limited (L&T IDPL; rated [ICRA]AA /(Stable) / [ICRA]A1+): – L&T IDPL is the holding company for long gestation infrastructure (Build-Operate-Transfer - BOT) projects of the L&T Group and currently manages 15 road projects as well as a transmission line project. The group has substantial technical and management capabilities and currently has a healthy financial profile backed by fund infusions from the shareholders, L&T and Canadian Pension Plan Investment Board (CPPIB).  Importance of State Highway - 10 (SH-10) in North Western Odisha: - The project corridor forms part of SH-10 which stretches from Rourkela to Sambalpur in Odisha for a total length of around 162 km. SH-10 is a key state highway in north western Odisha and provides connectivity to the Sambalpur, and Sundargarh districts of the state. It serves as an important route by providing connectivity between coal and iron ore mines and industrial clusters.

1 100 lakh = 1 crore = 10 million

 Grant Support from State : - Authority to pay a sizeable grant of Rs. 465 crore. Out of the total granted amount, Rs. 258 crore will be utilized as equity support for construction and remaining amount will be disbursed as an operation and maintenance (O&M) support during the first five years of tolling and this will support the debt servicing of the special purpose vehicle SPV in the initial years  Healthy construction progress: – As of July 2017, around 92% physical progress has been achieved. Provisional COD is expected soon, considering the current physical progress of the work. Though there are minor time over-runs, no cost over-runs are expected in the project. The final project cost is expected to be lower than the budgeted project cost due to EPC related savings observed.

Credit weaknesses

 Anticipated delay in the declaration of provisional COD: - Around 92% of physical progress has been accomplished as on July 2017, the scheduled COD. Delay is due to certain changes of scope related to changes in actual length for certain stretches such as road over/under bridges, increase/decrease in project facilities, and the heavy monsoons witnessed in Odisha in FY2016. Nevertheless, the delays are majorly due to reasons beyond the scope of the concessionaire and hence no penalties are anticipated. Moreover, considering that the company has applied for a provisional COD, the loss of toll revenues is expected to be minimal.  Uncertainty with regards to base traffic: - The traffic risk for the project is high given the uncertainty in estimation of base traffic for under-construction projects. As per the latest traffic count study commissioned by the company, decline in commercial traffic has been observed for FY2018 as compared to initial estimates. However, ICRA notes that the traffic pattern in the stretch is undergoing a transition due to conversion of lower axle vehicles to Multi-axle vehicles (MAVs) as well as the recent change in Government regulation on captive mining.  First Odisha State government project: - L&T IDPL’s first BOT project with the Works Department, State Government of Odisha – the first Public Private Partnership (PPP) project under the Odisha State Roads Program.  Uncertainty related to willingness to pay: - Users’ willingness to pay toll is not established; specific features of Odisha’s tolling policy like absence of concessional rates for daily/monthly passes for commercial vehicles and double the toll rates for major mineral carrying commercial vehicles could result in resistance to tolling.  Lower WPI growth may have adverse impact on toll rate: - Increase in toll rates is partially linked to increase in WPI. WPI growth rate since last 2-3 years has been consistently very low, which will have a negative impact on projected future toll revenues.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: Corporate Credit Rating Methodology ICRA’s Approach to Rating Toll Road projects

About the company: L&T Sambalpur Rourkela Tollway Private Limited (‘L&T SRTL’ / ‘SRTL’) is a 100% subsidiary of L&T Infrastructure Development Projects Limited (L&T IDPL; rated [ICRA]AA / Stable / [ICRA]A1+). L&T IDPL is a subsidiary company of Larsen & Toubro Limited (L&T) [rated [ICRA] AAA (Stable)] and is the holding company of various infrastructure projects being developed by L&T under the public private partnership (PPP) model. L&T SRTL was incorporated in October 2013 as a Special Purpose Vehicle (SPV) to implement the four-laning of Odisha’s State Highway - 10 (SH-10) from Sambalpur to Rourkela for a total length of 161.73 km. The project highway is being constructed under the Design- Build-Finance-Operate-Transfer (DBFOT) model under the Odisha State Road Project (OSRP). The total cost of the project is estimated to be Rs. 1565 crore, of which Rs. 1016 crore is being funded through term loans, promoter contribution of Rs. 290 crore, and the remaining Rs. 259 crore through construction grant from Odisha Works Department (OWD), State Government of Odisha.

Key Financial Indicators Particulars (In Rs. Crore) FY2016 FY2017 Operating Income (OI) - - PAT - - OPBIDTA/OI - - RoCE - -

Total Debt/TNW (times) 1.8 2.3 Total Debt/OPBDITA (times) N.A N.A Interest Coverage (times) N.A N.A NWC/OI % N.A N.A

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years:

Table: S. Instrument Current Rating (FY2018) Chronology of Rating History for the past 3 No. years

Type Amount Date & Date & Date & Date & Rating Rated Rating Rating in Rating in in FY2015 (Rs. FY2017 FY2016 crore)

August 2017 - March 2016 February 2015

1 Term loans Long-Term 1016.4 [ICRA]BBB [ICRA]BBB [ICRA]BBB ICRA[BBB] (Stable) (Stable) (Stable) (Assigned)

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

Instrument Date of Coupon Maturity Amount Rated Current Rating and Issuance Rate Date (Rs. crore) Outlook Term Loans - NA April 1016.4 [ICRA]BBB (Stable) 2030

Contact Details Analyst Contacts K.Ravichandran Raghunath T. 0 44 4596 4301 044 4596 4345 [email protected] [email protected]

Abhishwet Dhete 044 4297 4312 [email protected]

Relationship Contact Jayanta Chatterjee +91 80 4332 6401 [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

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