Rating Rationale
December 31, 2018 | Mumbai
Ashoka Sambalpur Baragarh Tollway Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.810 Crore
Long Term Rating CRISIL A-(SO)/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-(SO)/Stable' rating on the long-term bank loan facility of Ashoka Sambalpur Baragarh Tollway Limited (ASBTL).
 
The rating continues to reflect the strong commitment of operational and financial support from the parent, Ashoka Concessions Ltd (ACL), through an unconditional and irrevocable guarantee, and an undertaking to meet all debt obligations in a timely manner over the entire tenure of the loan. Any adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism will remain key rating sensitivity factors.
 
The 'SO' suffix reflects the payment structure that is designed to ensure full and time-bound payment to the lenders.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of ACL and ASBTL, as ACL has extended an unconditional and irrevocable corporate guarantee to ASBTL to support the project over the entire tenure of the loan. This is in line with CRISIL's analytical approach of rating instruments backed by guarantee.
 
ACL in turn is expected to receive support from Ashoka Buildcon Ltd (ABL; rated 'CRISIL AA-/Stable/CRISIL A1+'), the majority shareholder. ABL is expected to extend its support towards equity requirement and cashflow mismatches in ACL. Furthermore, ABL derives a large part of its revenue from the construction of projects housed under ACL.

Please refer Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Unconditional and irrevocable corporate guarantee, and undertaking, provided by ACL
ACL has extended an unconditional and irrevocable guarantee to meet all the debt obligations in a timely manner. In addition to the guarantee, ACL has also provided an undertaking that includes a payment mechanism, which ensures full and time-bound payments to the lenders. As per this mechanism, if ASBTL is unable to make the payment, ACL shall make all the necessary payments within 10 calendar days from the due date, irrespective of the lender invoking the guarantee.
 
* Diversified project portfolio of ACL
ACL currently holds six toll road projects and seven hybrid-annuity model (HAM) projects. All the toll road projects have been operational for more than three years and five of them are generating moderate toll collections and have a debt service coverage ratio (DSCR) of more than 1 time. Surplus cash flows from these projects provide financial flexibility to meet any support requirement for the underlying portfolio.
 
All the HAM projects (two were won in fiscal 2017 and five in fiscal 2018) are under construction with debt tied-up for construction. Two of these projects have achieved more than 30% progress as of November 2018, while the construction of one has begun recently in December 2018. The remaining four projects are awaiting their appointed date. Though there is implementation risk in these under-construction projects, inherent benefits of HAM, including right-of-way, reduction of scope and price indexation on bid project cost, mitigates these risks. Further, ABL is the engineering, procurement, and construction (EPC) contractor for these projects and has a strong track record in execution of build, operate, and transfer (BOT) projects over the past two decades.
 
* Comfortable financial risk profile
ACL's financial risk profile is supported by a healthy capital structure. Total debt as on March 31, 2018, stood at Rs 126.47 crore, which comprised only unsecured loans from the promoters (no external debt at standalone level). Low debt and a strong networth (Rs 1760 crore as on March 21, 2018) have resulted in a low gearing of 0.07 time. The company manages a portfolio of toll collection contracts from National Highways Authority of India (NHAI) and other authorities. Revenue and cash accrual were moderate at Rs 111 crore and Rs 79 crore, respectively, in fiscal 2018.
 
In addition, ABL, a majority shareholder in ACL, is expected to meet cash flow mismatches at ACL. Overall equity commitment in the HAM projects is expected to be over Rs 700 crore between fiscals 2019 and 2021. As SBI Macquarie, an investor, is slated to exit from ACL in August 2019, ABL has funded the equity funding requirement in the interim, i.e. 56% equity requirement in the two old HAM projects as per the construction progress and upfront equity requirement (40-50%) in the five new HAM projects, as of November 2018. Further, ABL generates large part of its revenue from the projects housed under ACL, making it strategically important in its growth.
 
Weakness
* Susceptibility to volatility in toll collections and interest rates
Toll collection is the single source of revenue for the project. Hence, any fluctuation in toll revenue driven by lower traffic volume or toll rate revision will adversely impact cash flows and in turn the debt servicing capability. Volatility in traffic volume was witnessed in the past with the mining ban in Odisha during 2015 and 2016. The lifting of the ban in the second half of fiscal 2017 resulted in a pickup in traffic to over 18-20% growth in fiscal 2018 and first half of fiscal 2019. However, toll revenue remains lower than initial estimates, leading to weak debt protection metrics. The metrics will continue to be susceptible to volatility in toll collections.

Further, the interest payment obligation of the project loan has a floating interest rate. Hence, it is subject to changes in the economic scenario and may impact the DSCR levels, and will remain a key rating monitorable. The pressure on liquidity will persist because of the premium of Rs 1.33 crore per year payable to NHAI, with 5% escalation every year. However, the unconditional and irrevocable guarantee along with an undertaking from ACL to meet all the debt obligations in a timely manner will support the overall credit risk profile.

* Large equity and support requirements of ACL
Equity commitment of ACL for its ongoing projects are over Rs 700 crore between fiscals 2019 and 2021. ACL has also provided cost overrun undertaking on these projects in case of need. Additionally, it supports its operational projects, as per the guarantees or undertaking provided, towards debt obligation, major maintenance shortfall, and debt-service reserve account requirement. Given the small scale and low cash accrual, ACL has limited financial flexibility to fund these requirements. Though ABL supports the cash flow mismatches in ACL, timely support from ABL will remain a key monitorable.
Outlook: Stable

The outlook is based on that of the guarantor, ACL. CRISIL believes ACL will continue to benefit from its diversified project portfolio and expected support from ABL for cash flow mismatch in ACL. The outlook may be revised to 'Positive' in case of significant improvement in revenue and profitability of ACL and reduction in support requirement towards its projects. The outlook may be revised to 'Negative' if ACL contracts large additional debt to fund its equity or cost overrun requirement of ongoing projects, or extends unconditional and irrevocable corporate guarantees to additional new road projects, weakening its financial risk profile.
 
Liquidity
Liquidity is adequate for ASBTL, supported by strong financial support from ACL, backed by an unconditional and irrevocable guarantee. Though at a project level the average DSCR is less than 1 time over the tenure of the loan, ACL is expected to fund all the shortfall requirement as stipulated by the payment mechanism. The track record of support has been demonstrated in fiscal 2018 and is expected to continue.
 
ACL doesn't have external debt and thereby no debt obligation. Its cash accrual and surplus from the operationally surplus projects are expected to meet a large part of the support requirements of its projects. Further, ABL is expected to support any cash flow mismatch in ACL. Equity commitment in the BOT projects in the past had been met though ABL and SBI Macquarie in proportion of shareholding in ACL, when SBI Macquarie had infused Rs 800 crore in ACL. Overall equity commitment in the HAM projects is expected to be over Rs 700 crore between fiscal 2019 and fiscal 2021. As SBI Macquarie is slated to exit from ACL in August 2019, ABL has funded the equity funding requirement in the interim, i.e. 56% equity requirement in the two old HAM projects as per the construction progress and upfront equity requirement in the five new HAM projects, as of November 2018. A new investor is expected to come in after August 2019 in fiscal 2020; which would meet the balance equity requirement in proportion to its shareholding.

About the Company

ASBTL is a special purpose vehicle (SPV) of ACL to undertake construction, conversion to four lanes, operation, and maintenance of the Sambalpur-Baragarh stretch of National Highway-6 (NH-6; from 0 to 88 kilometre) in Odisha, under the National Highways Development Project (NHDP) Phase III, on a BOT basis. The concession period for the project is 30 years (including 30 months for construction) with an annual premium pay out of Rs 1.33 crore to NHAI with a 5% increment each year.
 
The project cost of Rs 1,142 crore was funded through a term loan of Rs 810 crore, equity of Rs 167 crore, and zero-interest shareholder loan of Rs 167 crore. The company had received provisional completion certificate and commenced tolling from October 2014. It received full completion certificate and started tolling on the complete stretch from June 2016.  The toll collections have been much lower than anticipated owing to the ban on iron ore mining in Odisha in the past and hence lower-than estimated (base case) traffic volumes.
 
About the parent
ACL was set up in November 2011 as a subsidiary of ABL, which transferred seven BOT projects to the former. SBI Macquarie infused Rs 800 crore through a stake dilution of 34% (which may go up to 39% based on shareholding agreement terms at the time of the actual conversion of Compulsorily Convertible Debentures to Equity) in ACL, which acts as an exclusive BOT project developer for both ABL and SBI Macquarie. All the HAM projects awarded to ABL have also been housed under ACL.
 
ACL currently holds six operational toll road projects, and seven under-construction HAM projects. In addition, the company handles its own portfolio of toll collection contracts from NHAI and other authorities which contribute to most of its revenue. Toll collections of project SPVs under ACL are all managed on their own, by the SPVs.
 
About the ultimate parent
ABL, incorporated in 1993, engineered and constructed residential, commercial, industrial, and institutional buildings until 1997. The company won its first BOT project in 1997. Currently, operations comprise BOT and EPC road projects, EPC power transmission and distribution projects, collection of toll on roads and bridges owned and constructed by third parties, and manufacturing of ready-mix concrete. The company also ventured into the commercial gas distribution business in 2016 by winning its first order to build and operate a gas distribution network in Ratnagiri district, Maharashtra.
 
ABL is listed on both the Bombay Stock Exchange and National Stock Exchange. The company has significant experience of executing road projects across India and has constructed more than 10,000 lane km till date. This is also reflected in its outstanding BOT portfolio of 22 projects. In the EPC division, ABL constructs roads and bridges for its own BOT projects as well as for third parties. It also executes EPC projects in the power distribution space for various state governments.

Key Financial Indicators: Financial indicators for ASBTL
Financials as on / for the period ended March 31   2018 2017
Revenue Rs crore 63.3 49.5
Profit after tax Rs crore -63.8 -75.8
PAT margins % -100.7% -153.1%
Adjusted Debt/Adjusted Net worth Times 3.14 2.78
Interest coverage* Times 0.53 0.37
*Interest coverage is below 1 time due to low toll collections from the project in comparison to initial estimates. However, the project benefits from the unconditional and irrevocable guarantee from ACL
 
Financial indicators for ACL
Financials as on / for the period ended March 31   2018 2017
Revenue Rs crore 111.4 93.7
Profit after tax Rs crore 11.6 51.2
PAT margins % 10.4% 54.6%
Adjusted Debt/Adjusted Net worth Times 0.07 0.03
Interest coverage Times 10.29 40.61

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Term loan NA NA 31-Mar-28 810.0 CRISIL A-(SO)/Stable
 
Annexure - Details of Consolidation
Entity consolidated Extent of consolidation Rationale for consolidation
ASBTL Full Fully combined the business and financial risk profiles of ACL and ASBTL, as ACL has extended an unconditional and irrevocable corporate guarantee to ASBTL to support the project over the entire tenure of the loan.
ACL Moderate expected support from ABL towards equity requirement and cashflow mismatches in ACL
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  810.00  CRISIL A-(SO)/Stable      20-09-17  CRISIL A-(SO)/Stable  05-10-16  CRISIL BBB(SO)/Stable  25-05-15  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
            04-08-17  CRISIL BBB(SO)/Stable  22-07-16  CRISIL BBB-/Stable       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Term Loan 810 CRISIL A-(SO)/Stable Term Loan 810 CRISIL A-(SO)/Stable
Total 810 -- Total 810 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
The Infrastructure Sector Its Unique Rating Drivers
Rating Criteria for Toll Road Projects
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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