L&T Halol Shamlaji Tollway Limited

October 18, 2018

Summary of rated instruments Previous Rated Amount Current Rated Amount Instrument* Rating Action (Rs. crore) (Rs. crore) Term Loans 1014.93 577.37 [ICRA]D; reaffirmed Total 1014.93 577.37 *Instrument details are provided in Annexure-1

Rating action ICRA has reaffirmed the long-term rating of [ICRA]D (pronounced ICRA D) assigned to the Rs. 577.37-crore1 (reduced from Rs. 1014.93 crore) bank facilities of L&T Halol Shamlaji Tollway Limited (L&T HSTL) 2.

Rationale The rating reaffirmation takes into account the continuing irregularities in debt servicing in part of the debt [debt from India Infrastructure Finance Company Limited (IIFCL)]. In February 2017, under the Reserve Bank of India’s (RBI) Strategic Debt Restructuring (SDR) scheme, the lenders have converted part of the outstanding debt (Rs. 406.00 crore converted out of total outstanding of Rs. 1004 crore) into equity, post which the lenders hold a 51% stake in the company. However, one of the lenders (IIFCL) could not convert debt into equity and the servicing of that portion remains irregular. For other lenders, the company has been regular in servicing the debt remaining post SDR. The toll collections in the project remain low due to significant diversion of traffic into an alternate stretch, SH 59, developed by the Government of Gujarat (GoG). Furthermore, the upcoming major maintenance of the project will keep the cash flows of the company constrained. Going forward, the ability of the company to regularise debt servicing, and improvement in toll collections would be the key rating sensitivities.

Key rating drivers

Credit challenges Continuous delays in debt servicing - The company served a termination notice to the Gujarat State Road Development Corporation Limited (GSRDCL) in April 2016. Considering the uncertainty over the receipt of the termination payment, the lenders initiated the SDR scheme in July 2016 which was finally approved in February 2017. Through this scheme, the lenders took a 51% equity stake in the project by converting Rs. 406 crore of the project debt (out of total outstanding of Rs. 1,004 crore) in February 2017. The remainder of the debt (Rs. 598 crore) was restructured under the 5:25 flexible restructuring scheme of the RBI and the repayments commenced in April 2017. In the restructuring, one of the lenders (IIFCL) could not convert its debt into equity and the servicing for that account remains irregular. For other lenders, the company has been regular in servicing the debt remaining post SDR. Furthermore, the toll collections of the company remain modest and have constrained its cash flows and debt servicing capacity. ICRA also notes that the next major maintenance is scheduled for FY2020 and the cashflows from the project will not to be sufficient to meet this expense. Hence, the company’s liquidity is expected to remain under pressure.

1 100 lakh = 1 crore = 10 million 2 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating Publications

Significant alternate route risk – Since the beginning of tolling operations, the traffic volume in this stretch (in three of the four toll plazas) has been significantly lower than the initial estimates, due to presence of a significant alternate route. This has resulted in lower-than-anticipated cash accruals. The alternate route was substantially improved by the GoG into a competing road after award of this bid leading to considerable diversion of traffic from the project stretch.

Deferment of revenue share – As per the concession agreement, the company has to share a part of the revenues generated from toll collections with GSRDCL. However, due to lower toll collections, the company has not been able to pay the same. The approval from GSRDCL for deferment of revenue share is pending.

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

Links to applicable criteria:

Corporate Credit Rating Methodology

BOT Toll Road Projects in India

Default recognition

About the company L&T-HSTL, a special purpose vehicle (SPV), was incorporated in September 2008 as a 100% subsidiary of L&T Infrastructure Development Projects Ltd. (L&T IDPL). The SPV has carried out the four-laning of 173.06 km of SH-5 from Halol to Shamlaji in Gujarat. The project was awarded by GSRDCL on build operate transfer (BOT) basis with a concession period of 20 years, commencing from September 2009. The commercial operation date (COD) of the project, achieved in April 2012, was delayed by three months vis-à-vis the scheduled COD (December 2011). The project road is a part of SH-5 in Gujarat, which starts at Vapi (border of Maharashtra), runs through the eastern part of Gujarat and finally ends at Shamlaji (border of Gujarat with Rajasthan). The road is called Eastern State Highway. The total project cost of Rs. 1,305 crore was funded by equity of Rs. 261 crore and debt of Rs. 1,044 crorein a debt:equity ratio of 4:1.

In February 2017, the lenders approved project debt restructuring under the SDR scheme and converted a part of the outstanding debt for a 51% stake. At present, L&T IDPL holds a 49% stake in the company.

In FY2018, the company reported a net loss of Rs. 44.65 crore on an operating income (OI) of Rs. 83.87 crore compared with a net loss of Rs. 189.57 crore on an OI of Rs. 74.00 crore in the previous year.

Key financial indicators (audited) FY2017 FY2018

Operating Income (Rs. crore) 74.00 83.87 PAT (Rs. crore) -189.57 -44.65 OPBDIT/OI (%) 50.01% 66.21% RoCE (%) -0.63% 3.05%

Total Debt/TNW (times) 1.24 1.33 Total Debt/OPBDIT (times) 16.10 10.44 Interest Coverage (times) 0.20 0.73

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

Rating history for last three years

Current Rating (FY2019) Chronology of Rating History for the Past 3 Years Date & Amount Rating Date & Amount Outstanding Date & in Rating in Rated (June 30, Rating FY2018 FY2017 Date & Rating in FY2016 (Rs. 2018) (Rs. October April September August 2015 Instrument Type crore) crore) 2018 2017 - 2015 1 Term Loans Long 577.37 577.37 [ICRA]D [ICRA]D - [ICRA]D [ICRA]BB+(Stable) Term

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 Instrument Date of Issuance Maturity Rated Current Rating ISIN No Name / Sanction Coupon Rate Date (Rs. crore) and Outlook February 14, NA Term Loans NA March 2026 577.37 [ICRA]D 2017* Source: Company *Master Restructuring Agreement Date

ANALYST CONTACTS Shubham Jain Abhishek Gupta +91-124-4545306 +91-124-4545863 [email protected] [email protected]

Shiffali Garg +91-124-4545868 [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:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

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