Detailed Rationale

CRISIL Ratings has assigned its ‘Provisional CRISIL AAA/Stable' rating to proposed non-convertible debentures (NCDs) of Rs 1,050 crore and ‘Provisional CRISIL AAA/Stable’ corporate credit rating to Capital Infra Trust (CIT) erstwhile National Infrastructure Trust. CRISIL Ratings has reaffirmed its ‘Provisional CRISIL AAA/Stable' rating on proposed NCDs of Rs 1,350 crore of the trust. CRISIL Ratings has withdrawn its ‘Provisional CRISIL AAA/Stable' rating on the proposed long-term bank facilities following a request from the trust. The rating action is in line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.

 

CIT is an infrastructure investment trust (InvIT) comprising roads sector assets sponsored by Gawar Construction Ltd (GCL, or sponsor) with Gawar Investment Manager Pvt Ltd (GIMPL) as its investment manager, GCL as the project manager and Axis Trustee Services Ltd as the trustee.

 

There have been certain modifications/additions in the terms of the proposed financing documents vis-a-vis at the time of assignment of provisional rating on November 11, 2024. These are highlighted below:

 

• Debt amount has been reduced from up to Rs 2,600 crore to up to Rs 2,400 crore
• The proposed repayment schedule has been revised
• Proposed bank loan facilities have been replaced with proposed NCDs
• Further, for the proposed NCDs of up to Rs 1,200 crore (issue 1), the coupon rate is expected to be reset annually and for the remaining up to Rs 1,200 crore (issue 2), the coupon rate is fixed for the first three years and there is a provision for annual reset thereafter. The coupon was expected to be reset annually earlier
• Provisions for put and call options have been added. For issue 1, there is annual put and call options and for issue 2, the put and call options are available after three years from date of allotment and annually thereafter
• Reduction in cash trap trigger threshold from debt service coverage ratio (DSCR) of below 1.2 times to 1.15 times

 

CRISIL Ratings believes that the above changes will not have a material impact on the credit risk profile of the trust and debt protection metrics are expected to remain comfortable. While the provision for put and call option will expose the trust to refinancing risk, it is expected to be mitigated by strong DSCR and balance concession life of ~13 years.

 

CIT is in the process of filing the final offer document with SEBI, which will be subject to receipt of necessary approvals from lenders, authority and other stakeholders for transfer of shareholding of underlying project assets. Listing of the InvIT and refinancing of loans in underlying special purpose vehicles (SPVs) in line with proposed debt is expected to be completed by January 2025, subject to timely receipt of approvals. Any change in terms of debt and impact debt protection metrics will be a key rating sensitivity factor.

 

The rating continues to reflect a strong and diversified portfolio of nine hybrid annuity model (HAM) road assets proposed to be transferred to the trust by the sponsor, GCL. The portfolio will have a steady revenue profile, supported by the operational track record of assets receiving at least two annuities. The portfolio also has strong counterparty, National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable’) for all the assets. These factors, coupled with adequate leverage of debt to enterprise value (EV) of less than 49%, will result in comfortable debt protection metrics. Terms of the proposed financing documents stipulate maintenance of three-month debt service reserve account (DSRA) and cash trap if the debt service coverage ratio (DSCR) falls below 1.15 times, cushioning liquidity. It also stipulates put and call option every year for issue 1 and three years from deemed date of allotment and annually thereafter for issue 2. While the provision for put and call option will expose the trust to refinancing risk, it is expected to be mitigated by strong DSCR and balance concession life of ~13 years. The rating also reflects predictability of cash flows due to the fixed price operations and maintenance (O&M) and major maintenance (MM) contracts between GCL (project manager) and respective SPVs. GCL is a reputed player in the road construction industry with experience in constructing and maintaining road assets.

 

These strengths are partially offset by susceptibility to volatility in operating cost, interest rates and the possibility of increasing leverage for future acquisitions.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of CIT and its underlying SPVs, in line with its criteria for rating entities in homogeneous groups. This is because the trust is expected to have direct control over the SPVs and will infuse funds in them (in the form of InvIT loans) to repay debt. Furthermore, the SPVs will distribute their surplus cash flow to the InvIT in the form of interest and repayment (on the InvIT loan) and dividend, leading to highly fungible cash flow. Also, as per SEBI regulations, the cap on borrowings has been defined at a consolidated level.

 

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 along with strong counterparty

The portfolio comprises nine HAM assets, which have an operational track record of receiving at least two annuities and runs across seven states. Additionally, no HAM asset is contributing more than 25% to the total income of the InvIT and the balance concession period for the assets ranges from 10 to 14 years, which will provide long-term cash inflow to the InvIT.

 

The counterparty of all the assets is NHAI, which reduces the counterparty risk. Additionally, due to the inherent benefits of HAM projects, the traffic risk has been assumed by NHAI providing stability and predictability in cash flow. Payments from NHAI (annuity, interest on annuity and O&M payments) for seven out of the nine projects have been received without any material deduction with an average delay of less than a month. Two projects -- Gawar Bangalore Highways Pvt Ltd (GBHPL) and Gawar Nainital Highways Pvt Ltd (GNHPL-II) have received provisional commercial operations date (PCOD) and are under construction, leading to procedural delays in receipt of annuity payments. Timely receipt of future annuities without any material deductions will remain monitorable going forward.

 

Healthy debt protection metrics, with provision for cash trap and creation of DSRA

The financial risk profile will be driven by comfortable average DSCR throughout the tenure of the debt given the expectation of steady annuity receipts and moderate leverage expected at the trust level. As the entire debt is expected to be at the trust level, debt servicing will be supported by cash flow pooling of all projects under the InvIT structure.

 

As per the InvIT guidelines, debt must not exceed 49% of the asset value; this is also built into the draft term sheet. The initial portfolio is estimated to have leverage of around 43% with proposed debt of ~Rs 2,400 crore that will be used for refinancing the project debt. The proposed debt terms also require adequate liquidity cushion in the form of three-month DSRA and cash trap if DSCR falls below 1.15 times. It also stipulates put and call option every year for issue 1 and three years from deemed date of allotment and annually thereafter for issue 2. While the provision for put and call option will expose the trust to refinancing risk, it is expected to be mitigated by strong DSCR and balance concession life of ~13 years.

 

The estimated DSCR for the rated debt instruments is strong and expected to remain well above the covenants throughout the debt tenure. While the expected leverage and coverage ratios remain comfortable for the current portfolio of HAM projects, any significant change in composition of the portfolio due to addition of toll assets will remain monitorable. 

 

Fixed-price long-term maintenance agreements with GCL

The HAM assets that are proposed to be acquired have executed fixed-price O&M and MM contracts with GCL for the entire concession period. Any increase in O&M costs higher than stipulated in the agreement will be borne by GCL, resulting in stability in the cash flow of InvIT. Further, the contract cannot be terminated by GCL for the initial 5 years, which provides additional comfort. The trust will benefit from the strong asset management ability of the sponsor, GCL. It is an infrastructure development and construction company in India, with over 15 years of experience, primarily engaged in the construction of road and highway projects across 19 states in India for various government/semi-government bodies and statutory authorities. Since 2008, it has undertaken more than 100 road construction projects. GCL has a portfolio of 26 road HAM with NHAI, of which 11 are completed projects.

 

Weaknesses:

Susceptibility to volatility in operational costs, interest rates or higher leverage

Trust is exposed to risks related to maintenance of the project stretches. If the prescribed standards are not met, annuity payment may be reduced. Any significant delay and deduction in annuities could impact the project's debt-servicing capability. Furthermore, as operating costs depend on inflation, any significant increase in these components could impact cash flow. Nonetheless, a fixed-price agreement with GCL for maintenance of the stretches for full concession period is expected to mitigate this risk and help in effective maintenance of assets.

 

Also, along with fixed annuities, the projects will receive interest payments on the balance annuities that are linked to the prevailing bank rate. The reduction in bank rate impacts inflow given that a large proportion of the cash inflow is from the interest on balance annuities. However, this is partially offset by the fact that the interest rate on debt is floating and is also expected to follow the trend in bank rates.

 

The possibility of higher leverage (after fulfilling the criteria of six continuous distributions and maintaining external credit rating of AAA) may impact the coverage indicators of CIT. However, the risk is mitigated by the management articulation of maintaining the leverage levels in line with the initial debt-to-EV of ~49% going forward as well.

Liquidity: Superior

Annuity receipts will comfortably cover operational expenses and debt obligations. Furthermore, DSRA equivalent to interest and principal obligations of three months will be maintained. Liquidity will be supported by the cash trap provision if DSCR falls below 1.15 times. While the provision for put and call option will expose the trust to refinancing risk, it is expected to be mitigated by strong DSCR and balance concession life of ~13 years.

Outlook: Stable

CIT 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 and sustained delay in receipt of subsequent annuities, or considerable deduction in annuities and O&M payments, or significantly higher-than-expected maintenance cost
• Higher-than-expected incremental borrowings or debt-funded acquisition without commensurate revenue potential impacting overall DSCR
• Non-adherence to the structural features of the transaction, such as DSRA equivalent to 3 months

 

Additional disclosures for the provisional rating

The provisional rating is contingent upon occurrence of the following:

• Completion of the offer and listing of the InvIT
• Transfer of the shareholding in the proposed SPVs to the InvIT
• Refinancing of the existing debt at underlying SPVs with proposed debt 

 

The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed and confirmation on completion of pending steps within 90 days from the date of completion of offer through which the InvIT completes its fundraising and issues units.

 

The final rating assigned post conversion shall be consistent with the available documents and completed steps. In case of non-completion of steps or non-receipt of the duly executed transaction documents within the specified timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.

 

Rating that would have been assigned in the absence of the pending documentation

In the absence of pending steps/documentation considered while assigning the provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.

Risks associated with the provisional rating:

The prefix Provisional indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on case-to-case basis. In the absence of the pending steps/documentation, the rating on the instrument would not have been assigned ab initio.

About the trust
CIT (erstwhile National Infrastructure Trust) established on September 25, 2023 is registered as an irrevocable trust under the Indian Trust Act, 1882, and as an InvIT under the SEBI Infrastructure Investment Trust Regulations, 2014, since March 7, 2024 (updated registration certificate issued by SEBI on October 16, 2024). GCL is the sponsor, GIMPL is the investment manager and Axis Trustee Services Ltd is the trustee of InvIT.

 

Subject to the receipt of requisite approvals, the InvIT intends to acquire 100% of the equity shares in the nine project SPVs from the sponsor [Gawar Rohna Jhajjar Highway Pvt Ltd (GRJHPL), Gawar Khajuwala BAP Highway Pvt Ltd (GKBHPL), Gawar Narnaul Highway Pvt Ltd (GNHPL), Gawar Rohna Sonepat Highways Pvt Ltd (GRSHPL), Hardiya Hasanpur Highway Pvt Ltd (HHHPL), Gawar Kiratpur Nerchowk Highway Pvt Ltd (GKNHPL), Dewas Ujjain Highway Pvt Ltd (DUHPL), GBHPL and GNHPL-II].

 

Additional disclosures in case of provisional ratings for InvIT

The broad details of the group of assets identified by the trust are as follows:

 

GRJHPL

GRJHPL is an SPV incorporated on April 20, 2018, for redesigning, rehabilitation, upgrading to four lanes, and strengthening, of the Rohna/Hassangarh to Jhajjar section from kilometre (km) 44.80 to km 80.250 of National Highway (NH) 334B in Haryana on HAM. The concession agreement (CA) was signed on May 9, 2018, and the appointed date (AD) was received dated December 18, 2018. The project’s construction and operations periods are 730 days and 15 years, respectively. The project received provisional COD on July 10, 2020, and final COD on July 31, 2020. It has a track record of receiving eight annuities as on October 31, 2024.

 

GKBHPL

The SPV was formed on April 18, 2018 for upgrading a road to two-lanes with paved shoulder/four-laning of the Khajuwala–Poogal section (design chainage 0+000 km to 30+812 km) and the Poogal-Dantour-Jaggasar-Gokul-Goddu-Ranjeetpura-Charanwala-Naukh-Bap section of NH-911 (design chainage 1+430km to 182+725km; total design length 212.107 km), a part of the BMP in Rajasthan under HAM. The project’s construction and operations periods are 730 days and 15 years, respectively. The CA was signed on September 28, 2018, AD was declared as May 22, 2019, and it achieved PCOD on January 20, 2021, and the final COD as on October 30, 2021. It has a track record of receiving seven annuities as on October 31, 2024.

 

GNHPL

GNHPL is an SPV incorporated on February 8, 2019. It is established to develop 4/6 laning of Narnaul Bypass crossing to Paniyal Mor (NH 148B) at NH-48 junction = 31.24 km, Nizampur link road= 2.76 km and Narnaul Bypass crossing to Pacheri Kalan=11.30 km (NH-11) in Haryana on HAM under BMP. 11.3 km (four lane) of the stretch is constructed through bitumen and 28 km (6 lane) and 6 km (four lane) through concrete. The CA was signed on February 28, 2019, and the concession period includes construction period of 910 days from AD and fixed operations period of 15 years from the COD. AD was received on September 19, 2019, and the project has received an extension of 88 days owing to the Covid-19 pandemic and 91 days for ban on construction activity due to pollution. The project received COD on January 9, 2021. It has a track record of receiving seven annuities as on October 31, 2024.

 

GRSHPL

GRSHPL is an SPV, incorporated on April 1, 2019, for redesigning, rehabilitation and upgradation to four lanes and strengthening of Uttar Pradesh/Haryana border to Rohna section from km 0.00 to km 44.80 (design chainage) length (40.50 km) of NH 334B in Haryana on HAM under NH (O) (Package-1). Pavement type is rigid. The CA for the project was executed between the company and NHAI on May 27, 2019, for a concession period including construction period of 730 days from AD and fixed operations period of 15 years from COD. The construction period was extended by 90 days due to the pandemic. AD was declared on January 22, 2020, and the project received PCOD on January 29, 2022, with completion certificate by Independent Engineer (IE) received on April 5, 2022. It has a track record of receiving five annuities as on October 31, 2024.

 

HHHPL

HHHPL is an SPV, incorporated on September 22, 2020, for the implementation of four-laning of the Rajauli-Bhaktiyarpur section of NH 31 (new NH-20) from km 54+405 to km 101+630 (Package II) on HAM in Bihar. The project is of a rigid (concrete) pavement. The CA for the project was executed between HHHPL and NHAI on October 28, 2020, for a concession period including construction period of 730 days from AD and fixed operations period of 15 years from COD. The company received AD on April 28, 2021, and PCOD on April 27, 2023. It has a track record of receiving three annuities as on October 31, 2024.

 

GKNHPL

GKNHPL is an SPV incorporated on October 23, 2020, to complete the balance work for four-laning of Kiratpur to Nerchowk section of NH-21 (from km 12+750 to km 26+500 and km 126+500 to km 158+500, including ACC link road from km 0+00 to km 2+003) Greenfield Alignment (excluding Sundernagar Bypass (Package-2) in Himachal Pradesh on HAM basis. The project length is 47.753 km, and the pavement is flexible (bitumen) except for toll plazas, structures and tunnels. The CA for the project was executed between the company and NHAI on November 26, 2020, for a concession period including construction period of 910 days from the AD and fixed operations period of 15 years from COD. The company received the AD on August 12, 2021, PCOD on June 7, 2023, and final COD on September 5, 2023. It has a track record of receiving three annuities as on December 30, 2024.

 

DUHPL

DUHPL is an SPV incorporated on November 24, 2020, to complete four-laning of Dewas-Ujjain section of NH 148 NG from design ch 0+000 to 19+733 and construction of four-lane Ujjain Bypass from Design ch 19+733 to 26+900 (part-I) and construction of four-lane Dewas Bypass from design ch 0+000 to 14+520 (part-II), with total design length of 41.42 km in Madhya Pradesh. The project pavement is flexible (bitumen). The CA for the project was executed between the company and NHAI on December 11, 2020, for a concession period, including construction period of 730 days from AD and fixed operations period of 15 years from COD. The company received AD on July 6, 2021, PCOD on July 05, 2023 and COD on January 16, 2024. It has a track record of receiving two annuities as on October 31, 2024.

 

GBHPL

GBHPL is an SPV created by GCL for two/four laning of BRT Tiger Reserve Boundary to Bangalore section of NH -209 (existing chainage from km 287.520 to km 461.550) in Karnataka on HAM under NHDP Phase-IV. GCL had taken over this project through lender’s initiated harmonious substitution from erstwhile concessionaire, Sadbhav Bangalore Highway Pvt Ltd (SBHPL), which was stalled for around a year due to various reasons. CA was signed with SBHPL on December 8, 2016. Substitution of the concessionaire was also approved by NHAI through an Endorsement Agreement dated February 13, 2023. The earlier concessionaire had received PCOD for completed length of 81.75 km (~49% of the total project length) w.e.f. December 31, 2020. The annuities have been paid by NHAI proportionately as per physical progress of the project. As on October 31, 2024, the physical progress of the project stood at 99.3% and it has a track record of receiving seven annuities. PCOD for full length completion has been received as on October 21, 2024.

 

GNHPL-II

GNHPL-II is an SPV created by GCL for four laning of NH No 87 (New NH No. 9, 109) including the section from km 42.791 (design chainage 43.446) to km 88.000 (design chainage km. 93.226) (Package-II) (approx. 49.78 km in Uttarakhand on HAM. GCL has taken over the project through harmonious substitution from erstwhile Concessionaire viz Sadbhav Nainital Highway Ltd (SNHL), which was substantially delayed due to various reasons including financial distress faced by earlier concessionaire, delay in handing over of the right of way to the site, delay in receipt of approval of estimate for shifting of utilities, delay in approval of design and drawings of rail-over bridge (ROB) from Railway Department and delay due to force majeure event (Covid-19 pandemic). CA was signed with SNHL on June 2, 2016. Substitution of the concessionaire was also approved by NHAI through an Endorsement Agreement dated July 14, 2023. The earlier concessionaire had received PCOD for a completed length of 18.085 km out of 43.90 km w.e.f. October 27, 2019. The annuities have been paid by NHAI proportionately as per physical progress of the project. The project stretch is 97.11% complete as on November 30, 2024, and has received clarity on receipt of the provisional completion certificate (PCC)-II for ~ 90% physical progress completed till July 11, 2024, as outlined in the settlement agreement executed between the company and NHAI on October 15, 2024. The project is completed to the extent of encumbered land provided by NHAI and the company is awaiting receipt of PCC-II. It has a track record of receiving ten annuities as of November 30, 2024.

Key Financial Indicators^

Particulars	Unit	2024	2023
Revenue	Rs crore	NA	NA
Profit after tax (PAT)	Rs crore	NA	NA
PAT margin	%	NA	NA
Adjusted debt/adjusted networth	Times	NA	NA
Adjusted interest coverage	Times	NA	NA

^CRISIL Ratings adjusted

Past financial data is not available as the trust has recently been registered and assets are yet to be acquired