Pune Solapur Expressways Private Limited: Provisional [ICRA]AA- (Stable) Assigned to Rs

September 10, 2020

Pune Solapur Expressways Private Limited: Provisional [ICRA]AA- (Stable) assigned to Rs. 550 crore of senior debt; Provisional [ICRA]AA(CE) (Stable) assigned to Rs. 197.40 crore of sub-ordinated NCD backed by corporate guarantee and Provisional [ICRA]AAA(CE) (Stable) assigned to Rs. 197.40 crore of sub-ordinated Term Loan backed by SBLC

Summary of rating action Previous Rated Current Rated Instrument* Amount Amount Rating Action (Rs. crore) (Rs. crore) Non-convertible Debenture - 358.70 Provisional [ICRA]AA-(Stable); Assigned Programme (Senior Debt) Term Loans (Senior Debt) - 191.30 Provisional [ICRA]AA-(Stable); Assigned Non-convertible Debenture Provisional [ICRA]AA (CE) (Stable); - 197.40 Programme (Sub Debt)# Assigned Provisional [ICRA]AAA (CE)(Stable); Term Loans (Sub Debt)# - 197.40 Assigned Non-convertible Debenture 775.50 775.50 [ICRA]A (Stable); Outstanding Programme Term Loans 200.00 200.00 [ICRA]A (Stable); Outstanding Total 975.50 1920.30 #Rating Without Explicit Credit [ICRA]A Enhancement *Instrument details are provided in Annexure-1 Note: The (CE) suffix mentioned alongside the rating symbol indicates that the rated instrument/facility is backed by some form of explicit credit enhancement. This rating is specific to the rated instrument/facility, its terms and its structure and does not represent ICRA’s opinion on the general credit quality of the entity concerned. The last row in the table above also captures ICRA’s opinion on the rating without factoring in the explicit credit enhancement without the benefit of senior, sub tranches by considering the entire debt obligation to be met from operational cash flows

The assigned ratings are provisional (as denoted by the prefix ‘Provisional’ before the rating symbol) and is subject to fulfilment and review of all pending actions pertaining to the facilities rated by ICRA.

Rationale For the Provisional [ICRA]AA-(Stable) rating

The assigned rating factors in the proposed reduction in the senior debt with recourse to the project cashflows from Rs. 849.2 crore1 (as on July 31, 2020) to Rs. 550 crore (including undrawn OD limit of Rs. 72.8 crore). The balance debt of Rs. 394.8 crore is sub-ordinated and unsecured in nature of which; Rs. 197.4 crore is backed by corporate guarantee of Tata Realty and Infrastructure Limited [TRIL/Guarantor, rated [ICRA]AA (Stable)/[ICRA]A1+2] and Rs. 197.4 crore is backed by stand by letter of credit (SBLC) from BNP Paribas S.A. [BNPP, rated by Moody’s at Aa3 (Stable)]. The rating favourably factors in the operational status of Pune Solapur Expressways Private Limited’s (PSEPL) road project with more than seven years of toll collection track record. The traffic grew at a CAGR of 3.9% during FY2014 to FY2020, however, the

1 Rated at [ICRA]A (Stable) currently; will be withdrawn once proposed instruments are placed and earlier debt is retired

2 Link to the last rating rationale of TRIL

project stretch witnessed a muted growth in traffic in FY2020 at 1.1% primarily on account of the Ministry of Road Transport and Highways’ (MORTH) directive to increase the load carrying capacity of heavy vehicles by 20%-25% in July 2018, the general slowdown in the economy and the constrained vehicular movement in the run up to the nation-wide lockdown due to Covid-19 pandemic. PSPEL has a debt service reserve account (DSRA) equivalent to three months of principal and interest which would be subsequently topped up to 6 months of P+I for the senior debt in FY2021. The presence of DSRA along with other structural features viz. mandatory prepayment, major maintenance reserve (MMR), cash flow waterfall, lock-up DSCR of 1.15x etc, provide credit support to the senior debt. The rating also factors in the healthy projected loan life coverage ratio (LLCR) for the senior debt in the range of 1.65-1.8 times. The rating factors in the strong profile of the sponsors –TRIL Roads Private Limited (a 100% subsidiary of TRIL) and Atlantia SPA. While TRIL is the Tata Group’s arm in the real estate and infrastructure segment, Atlantia SPA is a global motorway management company.

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. On account of the COVID pandemic and the subsequent lockdown imposed throughout the country, tolling was suspended from March 26, 2020 through April 19, 2020 by Ministry of Road Transport and Highways (MORTH). Owing to the localised lockdowns imposed in Pune region, the traffic plying on the project stretch has been adversely impacted. Consequently, the ramp-up in toll collections has been slower when compared to other national highway stretches. In August 2020, PSEPL reached 85% of the average collections in FY2020. The rating remains sensitive to movement in interest rate owing to variable interest rate with an option of spread reset. The company has initiated its first major maintenance activity with an estimated outlay of Rs. 78 crore over FY2021-22, which will be funded through existing MMR, undrawn term loan and OD facility, and operational cash flows. In case of any unforeseen increase in expense, undrawn OD lines provide comfort to an extent.

ICRA takes note of the pending construction of 3.85 km of median plantation works, for which RoW is yet to be awarded by the National Highways Authority of India (NHAI, rated [ICRA]AAA (Stable)/[ICRA]A1+). As per the company’s estimates, the cost to complete the pending works is expected to be ~Rs. 2.0 crore.

The Stable outlook on the [ICRA]AA- rating reflects ICRA’s opinion that PSEPL will continue to benefit from the low alternate route risk, the established traffic density which will continue to support the traffic growth and strong profile of the sponsors.

For the Provisional [ICRA]AA(CE) (Stable) rating

The above rating is based on the strength of the corporate guarantee to be provided by Tata Realty & Infrastructure Limited (TRIL/Guarantor for sub debt amounting to Rs. 197.4 crore), the ultimate owner for 50% shareholding of Pune Solapur Expressways Private Limited (PSEPL), for the rated non-convertible debentures (NCD) programme. The Stable outlook on this rating reflects ICRA’s outlook on the rating of the guarantor TRIL. The rating assigned is provisional as of now (as denoted by the prefix ‘Provisional’ before the rating symbol) and is subject to fulfilment of all conditions under the structure as mentioned to ICRA including execution of the transaction documents, and the executed documentation being in line with the drafts shared with ICRA. The final rating may differ from the provisional rating in case the completed documentation is not in line with ICRA’s expectations.

Adequacy of credit enhancement The rating of the instrument is based on the credit substitution approach whereby the rating of the Guarantor has been translated to the rating of the said instrument. The guarantee is legally enforceable, irrevocable, unconditional, covers the entire amount and tenor of the rated instrument and has a well-defined invocation and payment mechanism. Given these attributes, the guarantee provided by TRIL is adequately strong to result in an enhancement in the rating of the

said instrument to Provisional [ICRA]AA(CE) against the Unsupported Rating of [ICRA]A. In case the rating of the Guarantor were to undergo a change in future, the same would reflect in the rating of the aforesaid instrument as well.

Salient covenants of the rated facility » Bullet repayment in March 2029; to be paid after the Senior Debt has been fully repaid.

» Tata Sons Limited will not dilute shareholding in TRIL below 51% and maintain management control.

» If Rating of TRIL/facility falls below A-, the Debenture Holders shall have the right to accelerate the facility (NCD of Rs. 197.4 crore).

For the Provisional [ICRA]AAA(CE) (Stable) rating

The rating for the Rs. 197.40 crore term loan facility is based on the strength of the unconditional and irrevocable SBLC to be provided by BNP Paribas S.A. [BNPP, rated by Moody’s at Aa3 (Stable)]. The rating assigned is provisional as of now (as denoted by the prefix ‘Provisional’ before the rating symbol) and is subject to fulfilment of all conditions under the structure as mentioned to ICRA including execution of the transaction documents, and the executed documentation being in line with the drafts shared with ICRA. The final rating may differ from the provisional rating in case the completed documentation is not in line with ICRA’s expectations.

Adequacy of credit enhancement The rating of the facility is based on the credit substitution approach whereby the rating of the SBLC Provider has been translated to the rating of the said instrument. The SBLC is legally enforceable, irrevocable, unconditional, covers the entire amount [with a validity of 18 months (to be renewed 30 days before expiry)] of the rated facility and has a well- defined invocation and payment mechanism. Given these attributes, the SBLC provided by BNPP is adequately strong to result in an enhancement in the rating of the said facility to [ICRA]AAA(CE) against the Unsupported Rating of [ICRA]A. In case the credit profile of the SBLC Provider were to undergo a change in future, the same would reflect in the rating of the aforesaid facility/ instrument as well.

Salient covenants of the rated facility » Bullet repayment in March 2029; to be paid after the Senior Debt has been fully repaid.

» The SBLC shall be renewed 30 days prior to its expiry, failing which the SBLC shall be invoked and shall be paid within 3 days of invocation.

Key rating drivers and their description

Credit strengths Reduction in the senior debt with recourse to project cashflows and healthy debt coverage metrics - The rating factors in the proposed reduction in the senior debt with recourse to the project cashflows from Rs. 849.2 crore (as on July 31, 2020) to Rs. 550 crore (including undrawn OD limit of Rs. 72.8 crore). The balance debt of Rs. 394.8 crore is sub- ordinated and unsecured in nature of which, Rs. 197.4 crore is backed by corporate guarantee of TRIL and Rs. 197.4 crore is backed by SBLC from BNPP. The rating also factors in the healthy projected loan life coverage ratio for the senior debt in the range of 1.65-1.8 times.

Corporate Guarantee / SBLC provided by TRIL / BNPP – The rating for the Rs. 197.40 crore NCD is based on the strength of the unconditional and irrevocable guarantee to be provided by TRIL. The rating for the Rs. 197.40 crore term loan facility is based on the strength of the unconditional and irrevocable SBLC to be provided by BNPP.

Structured payment mechanism to be in place to ensure timely payments – A trustee/lender monitored payment mechanism will be in place to ensure the timely payment of the interest and principal obligations on the Rs. 197.40 crore NCD programme and Rs. 197.40 crore term loan facility.

Operational nature of project – PSEPL is an operational road project with more than seven years of toll collection track record. The traffic grew at a CAGR of 3.9% during FY2014 to FY2020, however, the project stretch witnessed a muted growth in traffic in FY2020 at 1.1% primarily on account of the Ministry of Road Transport and Highways’ (MORTH) directive to increase the load carrying capacity of heavy vehicles by 20%-25% in July 2018, the general slowdown in the economy and the constrained vehicular movement in the run up to the nation-wide lockdown due to Covid-19 pandemic.

Presence of structural features provides credit support – PSPEL has a DSRA equivalent to three months of principal and interest which would be subsequently topped up to 6 months of P+I for the senior debt in FY2021. The presence of DSRA along with other structural features viz. mandatory prepayment, major maintenance reserve (MMR), cash flow waterfall, lock-up DSCR of 1.15x etc, provide credit support to the senior debt.

Strong profile of the sponsors – The rating takes into account the strong profile of the sponsors –TRIL and Atlantia SPA. Both the sponsors are prominent players in the infrastructure segment. While TRIL is the Tata Group’s arm in the real estate and infrastructure segment, Atlantia SPA is a global motorway management company.

Credit challenges Impact of COVID - Owing to the localised lockdowns imposed in Pune region, the traffic plying on the project stretch has been adversely impacted. Consequently, the ramp-up in toll collections has been slower when compared to other national highway stretches. In August 2020, PSEPL reached 85% of the average collections in FY2020. Lower than expected ramp-up in toll collections would be a credit negative.

Project exposed to risks inherent in BOT (Toll) road projects – PSEPL’s cash flows are exposed to volatility in toll collections due to future traffic growth rate. 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.

Ensuring O&M expense and major maintenance expense within budgeted levels - The company has initiated its first major maintenance activity with an estimated outlay of Rs. 78 crore over FY2021-22, which will be funded through existing MMR, undrawn term loan and OD facility, and operational cash flows. In case of any unforeseen increase in expense, undrawn OD lines provide comfort to an extent.

Project remains exposed to interest rate risk – PSEPL’s cash flows are exposed to interest rate risk owing to variable interest rate with an option of spread reset. Liquidity position For the Provisional [ICRA]AA- (Stable) rating: Strong The company has a strong liquidity position with unencumbered cash balances of ~Rs.14.5 crore as of July 31, 2020. The company’s principal obligation on the senior debt in FY2021 is Rs 17.8 crore which can be comfortably met through cash flows from operations. The company will be undertaking first major maintenance activity; the total outlay is estimated to be ~Rs. 78 crore over a two-year period, FY2021-22, which will be funded through existing MMR, undrawn term loan and OD facility, and operational cash flows. The company also has maintained DSRA of Rs.25.1 crore as of July 31, 2020 in form of term deposit which is equivalent to 3 months of interest & principal payment which will be subsequently topped up to 6 months of interest & principal payment as per the sanction terms. Apart from this, PSEPL also has an undrawn OD facility of Rs. 72.82 crore.

For the Provisional [ICRA]AA(CE) (Stable) rating: Adequate The liquidity position of the guarantor, TRIL remains adequate with unencumbered cash and bank balance of Rs.260.0 crore and liquid investments of Rs.711.8 crore as on March 31, 2020. Further the company also has an unutilised overdraft limit of Rs.75 crore as on March 31, 2020, which supports the liquidity profile. The company has refinanced/in process of refinancing its debt obligations for the current financial year.

For the Provisional [ICRA]AAA (CE) (Stable) rating: Superior The liquidity profile of the SBLC provider is superior as evident from the high liquidity buffer of €425 billion (as on June 30, 2020) supported by continued deposit growth.

Rating sensitivities For the Provisional [ICRA]AA- (Stable) rating Positive triggers: In case the company witnesses higher than expected traffic growth on a sustained basis, resulting in further strengthening of its financial risk profile with LLCR improving beyond 1.90 time.

Negative triggers: Negative pressure on the rating could arise if the traffic growth is lower than expected on a sustained basis or the company incurs higher-than-anticipated O&M expense on a sustained basis. Additionally, the rating might be downgraded if the company takes on additional debt, resulting in compression of LLCR to below 1.65 times.

For the Provisional [ICRA]AA(CE) (Stable) rating Positive triggers: In case of significant improvement in the credit profile of the guarantor – TRIL, there could be a scenario for rating upgrade.

Negative triggers: Negative pressure on the rating could arise if there is a deterioration in credit profile of the guarantor and/or if there is non-adherence to the structure of the rated instruments.

For the Provisional [ICRA]AAA (CE) (Stable) rating Positive triggers: Not Applicable

Negative triggers: Negative pressure on the rating could arise if there is a deterioration in credit profile of the SBLC provider and/or if there is non-adherence to the structure of the rated instruments.

Analytical approach

Analytical Approach Comments Corporate Credit Ratings: A Note on Methodology Applicable Rating Methodologies Rating Methodology for BOT (Toll) Roads Approach for rating debt instruments backed by third-party explicit support The assigned rating for Rs. 197.4 crore NCD is based on the unconditional, irrevocable corporate guarantee extended by TRIL. Parent/Group Support The assigned rating for Rs. 197.4 crore term loan is based on the unconditional, irrevocable SBLC extended by BNPP. Consolidation/Standalone Standalone

About the company Incorporated on March 20, 2009, PSEPL is an SPV promoted by TRIL Roads Private Limited (TRPL; 50% stake in PSEPL) and Atlantia SPA (50%) for four-laning of the 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 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 was Rs.1371 crore.

Around 84 km (including 7.2 km bypass) of stretch was completed by January 28, 2013 and provisional completion certificate was issued. Partial tolling commenced from February 4, 2013. Subsequently, the remaining 26 km stretch was completed by January 28, 2015 and the final completion certification was issued.

Key financial indicators (audited) FY2019 FY2020 Operating Income (Rs. crore) 152.6 161.3 PAT (Rs. crore) -12 1.5 OPBDIT/OI (%) 73.9% 75.6% PAT/OI (%) -7.8% 0.9%

Total Outside Liabilities/Tangible Net Worth (times) 21.8 21.1 Total Debt/OPBDIT (times) 7.6 7.0 Interest Coverage (times) 1.3 1.5 Source: PSEPL, ICRA research

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for past three years

Current Rating (FY2021) Rating History for the Past 3 Years

Instrument Amou Amount Rating FY2020 FY2019 FY2018 Type nt Outstandi Rated ng 10-Sep-20 29-Nov-19 31-Oct-18 15-Sep-17 Non-convertible Debenture Programme Long 358.7 Provisional [ICRA]AA-(Stable); 1 - - - - (Senior Debt) Term 0 Assigned Long 191.3 Provisional [ICRA]AA-(Stable); 2 Term Loans (Senior Debt) - - - - Term 0 Assigned Non-convertible Debenture Programme Long 197.4 Provisional [ICRA]AA (CE) (Stable); 3 - - - - (Sub Debt) Term 0 Assigned Long 197.4 Provisional [ICRA]AAA (CE)(Stable); 4 Term Loans (Sub Debt) - - - - Term 0 Assigned Long 775.5 [ICRA]A [ICRA]A(SO) [ICRA]A(SO) 5 Non-convertible Debenture Programme 753.53 [ICRA]A (Stable); Outstanding Term 0 (Stable) (Stable) (Stable) Long 200.0 [ICRA]A [ICRA]A(SO) [ICRA]A(SO) 6 Term Loans 95.69 [ICRA]A (Stable); Outstanding Term 0 (Stable) (Stable) (Stable)

Amount in Rs. crore

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 Amount Date of Rated Issuance / Coupon Maturity (Rs. Current Rating and ISIN Instrument Name Sanction Rate Date crore) Outlook Provisional - NCD (Senior Debt) - - - 358.70 [ICRA]AA-(Stable) Term Loan (Senior Provisional NA - - - 191.30 Debt) * [ICRA]AA-(Stable) Provisional - NCD (Sub Debt) - - - 197.40 [ICRA]AA(CE) (Stable) Provisional Term Loan (Sub NA - - - 197.40 [ICRA]AAA(CE) Debt) (Stable) [ICRA]A(Stable); INE598K07011 NCD 17-July-2015 9% 31-Mar-29 705.06 Outstanding [ICRA]A(Stable); INE598K07029 NCD 17-July-2015 9% 31-Mar-29 70.44 Outstanding [ICRA]A(Stable); NA Term Loan 17-July-2015 - 31-Mar-29 200.00 Outstanding * Sub-limit of Rs. 72.82 crore in form of OD facility Source: PSEPL

Analyst Contacts Shubham Jain Rajeshwar Burla Shreyans Talawat +91 124 4545 306 +91 40 4067 6527 +91 22 6169 3368 [email protected] [email protected] [email protected]

Abhishek Dafria Sachin Joglekar +91 22 6114 3440 +91 22 6114 3470 [email protected] [email protected]

Relationship Contact L Shivakumar +91 22 2433 1084 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [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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