Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable' corporate credit rating of Energy Infrastructure Trust (Energy Infra; Formerly known as India Infrastructure Trust. An infrastructure investment trust [InvIT]). Energy Infra owns the entire stake in Pipeline Infrastructure Ltd. (PIL; rated ‘Crisil AAA/Stable’), a special purpose vehicle (SPV), which took over the East West Pipeline (EWP) from Reliance Industries Holdings Pvt Ltd. on a going concern basis in 2019.

 

The rating continues to reflect the favorable location of the pipeline, expectation of stable cash flow backed by a long-term contract with Reliance Industries Ltd (RIL; rated 'Crisil AAA/Stable/Crisil A1+') and comfortable financial risk profile. These strengths are partially offset by exposure to refinancing and operations and maintenance (O&M) risks.

 

EWP is the sole pipeline connecting the gas-producing eastern coast to the western coast of India. It also connects key industrial clusters and is connected to GAIL (India) Ltd’s trunk and other pipelines.

 

PIL had entered into a pipeline usage agreement (PUA) with RIL whereby the latter has contracted a certain capacity of the pipeline for 20 years. The arrangement ensures steady cash flow to PIL if the actual revenue is lower, either on account of lower gas volume or tariff. RIL is entitled to use the unutilised capacity payments made under the PUA in future. RIL will also participate in upside sharing if the actual capacity charges as per gas transportation agreement received by PIL in a fiscal year are higher than the contracted capacity payments (CCP) paid by RIL during that fiscal year.

 

The financial risk profile remains robust, with debt-to-assets within 70%, and a comfortable debt service coverage ratio (DSCR). The rating also takes into consideration the presence of a cashflow waterfall mechanism being maintained at SPV level.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Energy Infra with its underlying SPV i.e. PIL. This is because the InvIT has direct control over PIL, which generates the entire cashflow. Furthermore, the SPV must mandatorily distribute 90% of its net distributable cash (post servicing of debt) to the InvIT, ensuring high fungibility of cash flow. Also, the leverage cap, debt servicing etc. as mandated by the SEBI regulations is to be monitored 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:

• Favorable location of the pipeline: The EWP is the sole pipeline connecting the gas producing eastern coast to the western coast of India, extending from Kakinada in Andhra Pradesh to Bharuch in Gujarat. It supplies gas to key industrial clusters and to customers in the fertilizer, city gas distribution (CGD), power, iron and steel, petrochemicals, and refining sectors. The pipeline is also connected to the pipelines of other operators, such as GAIL and Gujarat State Petronet Ltd, for onward delivery of gas to other parts of India.

 

• Stable cash flow from long term contract with RIL: The overall cash flows benefit from the presence of a 20-year contract with RIL for CCP and the strong credit risk profile of the counterparty. The pipeline is critical for RIL, given the significant investments being undertaken for ramping up the gas volumes in the Krishna-Godavari (KG)-D6 fields. This arrangement will ensure steady cash flows even if the actual gas volume is lower, or tariff rates are reduced.

 

Cash flow generation has improved over the nine months through fiscal 2025 on account of increased production from the KG-D6 fields. While PIL transported ~33.11 million metric standard cubic metric per day (mmscmd) of gas in fiscal 2024, the volume improved to ~35.38 mmscmd over the nine months through fiscal 2025. Over the medium term, the volume could further ramp up with an increase in output expected from the investments undertaken by RIL and the other operators for extracting gas from the KG basin. Furthermore, revenues and thus cash flow are also supported by the pipeline being used by the other operators for parking/transporting natural gas.

 

• Comfortable financial risk profile: The financial risk profile is marked by stable cash accrual, healthy debt-to-value ratio and a strong DSCR. External debt of Rs 6,452 crores is in the form of NCDs at the SPV level with no additional external debt at the consolidated InvIT level. The debt-to-asset ratio at the consolidated Energy Infra level is also expected to remain within 70%, thereby restricting debt that PIL could avail. Healthy cash generation by PIL will ensure a comfortable DSCR.

 

PIL, also has a well-defined waterfall payment structure, wherein payment of interest on external debentures is to be prioritised before payments towards debt from InvIT or to investment manager and unitholders. This provides additional support to the financial risk profile. Furthermore, PIL will receive cash flows from RIL at the beginning of the quarter, whereas interest repayment at PIL is scheduled at the end of each quarter, providing a cushion of around three months.

 

The investors are protected in case of delay in payments by RIL. In such a scenario, Energy Infra can exercise an enforcement option, which will require RIL to either purchase the NCDs for the enforcement amount or invest the amount into PIL. The proceeds will then be utilized to redeem the external NCDs. The enforcement option will be consummated on the 158th day from the beginning of the quarter where payment from RIL has been missed.

 

Weaknesses:

• Moderate refinancing risks: The external NCDs at PIL will mature at the end of the third, fourth and fifth year, thereby exposing the company to moderate refinancing risk. However, a 10-year tenure for the underlying assets extending beyond the repayment tenure should help refinance the bullet repayment comfortably. Furthermore, PIL can exercise a call option within 90 days before the respective maturities of the proposed NCDs. This should also help in optimising the refinancing in a timely manner.
   

PIL is expected to prudently refinance the maturing debt and maintain a healthy DSCR over the medium term.

 

• Exposure to moderate O&M risks: O&M for the pipeline is undertaken by a contractor i.e. Pipeline Management Services Pvt. Ltd., which is a 50:50 joint venture (JV) between the RIL group and the ECI India Managers Private Ltd, the project manager of the InvIT. O&M expenses form a significant proportion of expenses. However, if in any year, the actual O&M costs and system used gas (SUG) incurred are over that determined in the initial annual operating plan and budget, excess O&M costs will be funded by RIL.

Liquidity: Superior

The stable cash flows are expected to amply cover debt obligations over the medium term, leading to a healthy DSCR (more than 1.4 times, after excluding subordinated debt and considering only CCP) over the tenure of NCDs. Furthermore, the long life of underlying assets, extending well beyond the debt tenure, should aid in refinancing bullet repayments at favorable terms.

Outlook: Stable

Energy Infra will benefit from the long-term pipeline usage agreement executed with a strong counterparty over the medium term. An improvement in the volume of gas transport is also expected.

Rating sensitivity factors

Downward factors:

• Significant delay in receipt of quarterly payments from RIL
• Decline in DSCR owing to lower cash accruals or higher debt
• Weakening of credit risk profile of RIL by one or more notches

About the Company

Energy Infra is promoted by an indirect subsidiary of Brookfield Corporation (BN): Rapid Holdings 2 Pte Ltd (sponsor). It has acquired the entire stake in PIL. EnCap Investment Manager Pvt Ltd (erstwhile Brookfield India Infrastructure Manager Pvt Ltd.) is the Investment Manager. O&M contractor is a 50:50 JV of the sponsor and Reliance group. IDBI Trusteeship Services Ltd is the debenture trustee.

Key Financial Indicators*

As on/for the period ended March 31	Unit	2024	2023
Revenue	Rs.Crore	3666	2744
Profit After Tax (PAT)	Rs.Crore	822	546
PAT Margin	%	22.4%	19.9%
Adjusted debt/adjusted networth	Times	1.29	1.28
Adjusted Interest coverage	Times	3.80	3.48

*Consolidated financials adjusted by Crisil Ratings

Any other information: Not Applicable