Detailed Rationale

CRISIL Ratings has converted its provisional rating on the long-term bank facilities of Bharat Highways InvIT (BHI) to a final rating of ‘CRISIL AAA/Stable’.

 

BHI is an infrastructure investment trust (InvIT) for road sector assets sponsored by Aadharshila Infratech Pvt Ltd (AIPL). The Investment Manager, Project Manager and Trustee to the InvIT are GR Highways Investment Manager Pvt Ltd (GHIMPL), Aadharshila Infratech Pvt Ltd (AIPL) and IDBI Trusteeship Services Limited (ITSL) respectively.

 

The rating action follows receipt of the required documents and completion of the following pending steps:

 

• Completion of the offer and listing of the InvIT: BHI completed its listing and was listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on March 12, 2024.

 

• Transfer of the shareholding in proposed special purpose vehicles (SPVs) to the InvIT: BHI has acquired the entire shareholding of all the 7 project SPVs. List of SPVs is mentioned in the ‘About the company’ section

 

• Refinancing of debt of underlying asset SPVs with proposed debt: BHI has refinanced the entire debt of the underlying SPVs with fresh equity issue of Rs 2,500 crore  and debt of Rs 1,149.67 crore (drawn in two tranches out of sanctioned debt of Rs 2,000 crore). There are no major changes in the key terms of the InvIT debt and the same are in line with details provided to CRISIL Ratings at the time of the reaffirmation and extension of the provisional rating on November 24, 2023. The debt protection metrics remain comfortable.

 

The rating continues to reflect the strong and diversified portfolio* of hybrid annuity model (HAM) road assets transferred to the trust by GR Infraprojects Ltd (GRIL; ‘CRISIL AA/Stable'). The portfolio has healthy revenue visibility, supported by healthy balance concession period of 10.9-13.4 years and strong operational track record with receipt of at least three annuities from the National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable') for all underlying assets. The geographically diversified portfolio and strategically located stretches strengthen the credit risk profile of BHI. The rating also reflects the fixed price Operations and Maintenance  Contracts between AIPL (project manager) and respective SPVs and back to back Operations and Maintenance Sub-Contracts between AIPL and GRIL (O&M contractor). The rating also derives strength from the experience of GRIL in managing and maintaining road assets.

 

The company has adequate leverage and strong debt protection metrics. As per the regulations, the debt is capped at 49% of the trust valuation till the first six distributions, and can be subsequently increased to 70%, subject to compliance with InvIT regulations. However, with higher issuance of equity, the reliance on debt reduced to Rs 1,149.67 crore (vis-à-vis Rs 2,000 crore previously envisaged). Hence, the portfolio enjoys comfortable leverage with debt/enterprise value (EV) of less than 20%^. The average debt service coverage ratio (DSCR) remains strong at above 1.10 times for the entire tenure of the existing debt. Additionally, as per the term loan agreement, Debt Service Reserve Account (DSRA) equivalent to one quarter of debt obligation has been created, thereby providing liquidity cushion.

 

The trust envisages acquisition of more assets over the medium term while complying with the InvIT regulations (debt/EV to be lower than 49%), thereby maintaining healthy debt protection metrics. More-than-expected debt, impacting the financial risk profile, will be a key rating sensitivity factor.

 

These strengths are partially offset by susceptibility to volatility in interest rates.

 

*The trust has a portfolio of seven HAM assets.

^As per the valuation report dated September 20,2023

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BHI with its underlying SPVs as the trust owns 100% shareholding and has direct control over these SPVs. The funds raised at the InvIT level have been lent to the SPVs as shareholder loans (or InvIT loan) and has been used to retire the entire external debt of the SPVs. Furthermore, the SPVs will distribute their entire surplus cash flow to the InvIT in the form of interest and repayment (on InvIT loan) and dividend/ capital repayment, leading to highly fungible cash flow. Also, as per the financing terms, the cap on borrowings has been defined at a consolidated level — aggregate consolidated borrowing for the InvIT and its SPVs is restricted at 49% of the valuation till the first six distributions, which can be subsequently increased to 70% subject to compliance with InvIT regulations.

 

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

Key Rating Drivers & Detailed Description

Strengths:

• Healthy operational track record of assets with strong counterparty: The portfolio comprises seven operational HAM assets. These assets have an operational track record of 1.5 - 4.0 years and are located across Gujarat (27%), Uttar Pradesh (25%), Maharashtra (18%), Andhra Pradesh (17%) and Punjab (13%), thereby providing geographical diversification. Additionally, no HAM asset contribute more than 25% to the total annuity of the InvIT, and the balance concession period for the seven assets (10.9-13.4 years) will provide long-term cash inflow to the InvIT.

 

The counterparty for all the assets is NHAI and the outlook on it reflects the outlook on the sovereign, which reduces counterparty risk. Additionally, due to the inherit benefits of HAM projects, the traffic risk has been assumed by NHAI, which provides stability and predictability to cash flow.

 

GR Phagwara Expressway Ltd (GPEL) has a track record of 8 annuities till date, while Porbandar Dwarka Expressway Pvt Ltd (PDEPL) has received 7 annuities, Varanasi Sangam Expressway Pvt Ltd (VSEPL) and GR Akkalkot Solapur Highway Pvt Ltd (GASHPL) have received six annuities each, GR Sangli Solapur Highway Pvt Ltd (GSSHPL) and GR Gundugolanu Devarapalli Highway Pvt Ltd (GDHPL) have received 5 annuities each and GR Dwarka Devariya Highway Pvt Ltd (GDDHPL) has received 3 annuities till March 31, 2024. The annuity payments for the seven HAM assets have been received without any substantial delay or material deduction.

 

• Strong debt protection metrics: The financial risk profile is expected to be healthy, supported by comfortable average DSCR of above 1.10 times for the entire tenure of the existing debt. This is on account of fixed annuity payments and moderate debt of Rs 1,149.67 crore at the trust level. Because of the lower-than-expected debt drawn at the trust level, debt servicing will be supported by cash flow pooling of all projects under the InvIT structure. Due to the fixed nature of the annuities and a strong counterparty (NHAI), all cash inflows, that is, the annuity payment from NHAI, interest on remaining annuity and inflation-adjusted O&M payment from NHAI are expected in a timely manner, which will support debt repayment.

 

The total debt  in the seven HAM projects prior to acquisition by InvIT was ~Rs 3,549 crore (~Rs 2,887 crore as rupee term loan and ~Rs 662 crore as NCD with interest accrued). In March 2024, the InvIT refinanced the existing rupee term loan at the SPV level by raising Rs 2,500 crore as fresh issuance from the market and drawing part of the sanctioned debt at a lower interest rate. After exercising the call option for the NCDs, the InvIT has refinanced the NCDs in the SPVs worth ~Rs 662 crore (including interest accrued) with external debt. A liquidity cushion is also built into the proposed debt terms in the form of one-quarter DSRA.

 

As per the InvIT guidelines, debt must not exceed 49% of the asset value (until six consecutive dividend distributions) which is also built in the financing documents. The portfolio enjoys comfortable leverage with debt / enterprise value (EV) of less than 20%^. Additionally, as per the term loan agreement, DSRA equivalent to one quarter of debt obligation has been created, thereby providing liquidity cushion.

 

BHI envisages acquisition of more assets over the medium term while maintaining the terms regulated by InvIT regulation (debt/EV to be lower than 49%), thereby maintaining healthy debt protection metrics. More-than-expected increase in debt impacting the financial risk profile will remain a key rating sensitivity factor.

 

• Experienced management team: BHI is backed by the experienced management team of AIPL and GRHIMPL, who has a strong management team with extensive experience, in-depth understanding and a proven track record of performance in the road and highways sector. The management team has an average of more than 33 years of experience in various sectors including in the road and highways sector and brings expertise in the areas of business strategy, operational and financial capabilities. In addition, BHI assets is managed by qualified personnel of the Project Manager.

 

• Fixed-price, long-term O&M agreement: O&M payments have come from NHAI without any major deductions for all the seven operational SPVs so far. Furthermore, O&M expenses are inflation-adjusted with 70% weight to WPI and 30% weight to CPI, reducing the variability in O&M payments. The acquired HAM asset has executed fixed-price Operation and Maintenance Contracts between respective SPVs and AIPL and back to back Operation and Maintenance Sub-Contracts  between AIPL and GRIL for the entire concession period. These fixed-price contract provides the first level of cushion in terms of stability of cash flow. Any increase in O&M higher than stipulated in the agreement will be borne by GRIL, resulting in lower volatility in cash flow for BHI.

 

Weakness:

• Susceptibility to volatility in interest rates: Any reduction in the bank rate can impact the DSCR given that a large proportion of the cash inflow is from the interest on balance annuities. Furthermore, as operation cost depends on inflation and the sanctioned rupee term debt has a floating interest rate, any significant increase in these components could impact cash flow. However, coverage indicators will be safeguarded to some degree by the natural hedge as the movement in interest rate on borrowings that are linked to external benchmark and the interest on annuities that are linked to the bank rate shall move in the same direction.

Liquidity: Superior

Annuity receipts by the SPVs which will be subsequently up-streamed to the BHI in form of interest payments, principal repayments and dividends will be adequate to meet operational expenses and debt obligation. DSCR remains strong above 1.10 times for the entire tenure of the existing debt. Additionally, as per the term loan agreement, DSRA equivalent to one quarter of debt obligation has been created, thereby providing liquidity cushion.

Outlook: Stable

CRISIL Ratings believes BHI will continue to benefit from the steady and timely receipt of annuities by the SPVs backed by strong counterparty.

Rating Sensitivity factors

Downward factors:

• Substantial delay and/or deduction in annuities and O&M payments in the SPVs impacting liquidity
• Higher-than-expected incremental borrowings and /or debt-funded acquisition of weak assets with low revenue potential impacting the overall DSCR
• Non-maintenance of adequate liquidity reserve in the form of 3 month DSRA
• Non-adherence to the covenants of the sanctioned debt

About the InvIT

BHI is an infrastructure investment trust of roads sector assets sponsored by AIPL with GHIMPL as its investment manager, AIPL as the project manager and ITSL as the trustee.

 

The InvIT was registered with SEBI in 2022 and has acquired 100% of the shareholding of the sponsor in seven project SPVs:  GPEL, PDEPL, GDHPL, GASHPL,VSEPL, GSSHPL and GDDHPL. BHI was listed on the BSE and NSE on March 12, 2024. Post acquisition of the equity shares of the project SPVs, the InvIT has issued fully subscribed ordinary units of 44,29,38,605 at Rs 100 per unit.

 

GPEL was incorporated in 2016 for four laning of the Phagwara to Rupnagar section of NH-344A from Km 0.00 (Design Chainage) to Km. 80.820 (Design Chainage) in Punjab on HAM basis. The project received PCOD on February 25, 2020, and COD on May 26, 2021, and had received eight annuities till March 31, 2024

 

PDEPL was incorporated in 2017 for four-laning of the Porbandar-Dwarka section of National Highway 8E in Gujarat from 356.786 km to 473.000 km (a stretch of 116.214 km) on a design, build, finance, operate, and transfer basis under HAM. The project received PCOD on April 18, 2020, and COD on October 13, 2021, and has received seven annuities till March 31, 2024.

 

VSEPL was incorporated in 2017  for six-laning of the Handia to Varanasi section of NH-2 from km 713.146 to km 785.544 in Uttar Pradesh under NHDP phase–V. The project received PCOD on November 2, 2020, and had received six annuities till March 31, 2024.

 

GASHPL was incorporated in 2018 for four-laning of the Akkalkot-Solapur section of NH 150E with paved shoulders from design chainage km. 99.400 to km 138.352 / existing chainage from km. 102.819 to km. 141.800 (design length 38.952 km.) including Akkalkot bypass (design length 7.350 km.). The project received PCOD on March 31, 2021,  and COD on March 09, 2023, and had received six annuities till March 31, 2024.

 

GSSHPL was incorporated in 2018 for four-laning of the Sangli-Solapur (Package- III: Watambare to Mangalwedha) Section of NH-166 from existing Ch. Km 272.394 to Ch. km 314.969 (Design Ch. km. 276.000 to Ch. km. 321.600). The project received PCOD on June 28, 2021, and had received five annuities till March 31, 2024.

 

GDHPL was incorporated in 2018 for four-laning of the Gundugolanu-Devarapalli-Kovvuru section of NH-16 from km 15.320 (existing km 15.700) to km 85.204 (existing km 81.400) in Andhra Pradesh under Bharatmala Pariyojana. The project received PCOD on July 10, 2021 and COD on September 30, 2022, and had received five annuities till March 31, 2024

 

GDDHPL was incorporated in 2019 for four-laning of the Dwarka (Kuranga)-Khambhaliya-Devariya section of NH 151A in Gujarat under Bharatmala Project. The project received PCOD on August 2, 2022, and had received three annuities till March 31, 2024

Any other information: Not Applicable