Detailed Rationale
CRISIL Ratings has placed its rating on the long-term bank facilities of IRB Infrastructure Trust (IRB Trust or InvIT) on ‘Rating Watch with Developing Implications’.

The rating action follows issuance of a non-binding offer by IRB Trust to IRB InvIT Fund (a publicly listed InvIT sponsored by IRBIDL, Public InvIT) for sale of five assets namely IRB Westcoast Tollway Ltd (IWTL), Kaithal Tollway Ltd (KTL), Kishangarh Gulabpura Tollway Ltd (KGTL), AE Tollway Ltd (AETL) and IRB Hapur Moradabad Tollway Ltd (IHMTL). The assets are valued at Rs 15,073 crore as on September 30, 2024, as per external valuation. The sale is subject to, amongst others, execution of definitive documents and receipt of necessary approvals.

CRISIL Ratings had assigned its rating based on the evaluation of cash flows of these five special purpose vehicles (SPVs) that are proposed to be sold. The rated debt at InvIT level (InvIT debt), standing at Rs 6,271 crore as on September 30, 2024, has been raised against cash flows of these SPVs which are ring-fenced from the rest of the InvIT. The management’s intent to operate the identified SPVs as a group with fungible cash flows, through a well-defined payment waterfall and tight escrow mechanism, was also factored. In addition to the cash flows of the identified group of five assets, CRISIL Ratings also factored in a part of the surplus cash flows available from Yedeshi Aurangabad Tollway Ltd (YATL, rated ‘CRISIL AAA/Stable’) and Solapur Yedeshi Tollway Ltd (SYTL, rated ‘CRISIL AAA/Stable’), post-servicing the asset level debt and meeting restricted payment conditions thereon, to evaluate the credit profile. This was because InvIT has provided a corporate guarantee towards the debt of these assets, thereby linking the InvIT debt to these SPVs.

Given that the rated debt is to be serviced through – a) the cash flows generated by the identified group of assets, which are proposed to be sold, albeit subject to fulfilment of certain conditions, and b) surplus cash flow from SYTL and YATL, which are expected to continue to be held by IRB Trust, the structure of the rated debt is expected to undergo change. Hence, CRISIL Ratings will continue to monitor the developments regarding the sale transaction as well as debt structure and will resolve the watch once the contours of the transaction are finalised.

Toll collection for identified SPVs grew 13% on-year in fiscal 2024. For the first 7 months of fiscal 2025, toll collection growth stood at 1% as compared to corresponding period of the last fiscal. Although the growth was lower than previous expectations, it is expected to see significant improvement in the second half of fiscal 2025, and the same remains a key rating sensitivity factor. The growth remained lower-than-expected due to one-time events such as general elections and subsequent slowdown in government spending, heavy monsoon in some regions as well as impact of network developments on some of the stretches. Some impact on toll collections is also on account of delay in toll rate hike in current fiscal. Additionally, toll collections of SYTL and YATL declined by ~10% and ~12% respectively for 7 months fiscal 2025 due to restriction on movement of heavy traffic through the feeder route (Kannad/Autram Ghat section) by the Aurangabad Bench High Court to prevent frequent traffic congestion in the region from August 11, 2023. This has also impacted the availability of surplus for the rated debt.

For the overall InvIT, toll collections grew 30% and 48% in fiscals 2024 and 7 months of fiscal 2025, respectively, on-year, driven by the addition of new assets in the portfolio(¹) In fiscal 2024, the InvIT acquired five assets – one state toll operate transfer (TOT) - IRB Golconda Expressways Pvt. Ltd (IGEPL, rated CRISIL AA-/Positive), BOT-toll project - Samakhiyali Tollway Pvt. Ltd (STPL) and two toll operate transfer (TOT) bundles with three assets (tolling commencing from April 1, 2024) namely – IRB Lalitpur Tollway Pvt. Ltd (ILTPL), IRB Kota Tollway Pvt. Ltd (IKTPL, rated CRISIL AA-/Stable) and IRB Gwalior Tollway Pvt. Ltd (IGTPL, rated CRISIL AA-/Stable). It is also in the process of acquiring a greenfield build-operate-transfer (BOT)-toll road project, Meerut Budaun Expressway Ltd (MBEL, part of Ganga Expressway) from IRB Infrastructure Developers Ltd (IRBIDL).

The rating continues to reflect the favourable location and geographic diversity of the stretches under the identified SPVs, and the strong track record of toll collection. These, coupled with adequate leverage will result in strong debt protection metrics. Further, provisions for maintenance of debt service reserve account (DSRA), cash reserve of Rs 100 crore and major maintenance reserve account (MMRA) provide liquidity cushion. Additionally, surplus cash flows from the remaining SPVs of IRB trust namely Udaipur Tollway Ltd (UTL), CG Tollway Ltd (CGTL), Palsit Dankuni Tollway Pvt. Ltd (PDTPL), IGEPL, STPL, ILTPL, IKTPL and IGTPL will also be available towards meeting shortfall in servicing InvIT debt, if required. The rating also derives strength from the experience of the sponsor, IRBIDL, in managing and maintaining road assets. 

These strengths are partially offset by susceptibility of toll revenue to volatility in traffic volume, development or improvement of alternative routes or modes of transportation that could impact revenue and in turn the debt service coverage ratio (DSCR). The DSCR will also remain susceptible to volatility in operations and maintenance (O&M) cost and interest rates.

Key Rating Drivers & Detailed Description
Strengths:
Geographically diversified portfolio with adequate track record and strong counterparty
The identified pool comprises five toll road projects and benefits from asset and geographical diversification. Additionally, all the five projects have a strong counterparty, National Highways Authority of India (NHAI, rated ‘CRISIL AAA/Stable’). The projects have tolling track record of 4-8 years. The identified pool has a combined length of 668 kilometre (km) (~3,300 lane km) with revenue of Rs 1041 crore in fiscal 2024 and ~Rs 609 crore in first seven months of fiscal 2025.

All the assets are key routes connecting arterial cities with most stretches being the shortest routes between these destinations, running through four states. Projects in the identified pool have a good mix of commercial (56%) and passenger (44%) traffic at a consolidated level; in terms of revenue, commercial traffic contributes 66% to the total toll collections of the InvIT. While a few stretches have alternate routes, the traffic diversion is already reflecting in the current traffic plying on them. 

All the five projects have an annual toll rate escalation with a fixed increase of 3% and a variable portion equal to 40% change in wholesale price index (WPI), limiting dependence on WPI, thereby supporting revenue. Toll revenue for all identified assets grew at a compound annual growth rate (CAGR) of over 20% (except KTL which grew at 8%) over fiscals 2020 to 2024. While the long-term toll revenue growth is healthy, traffic witnessed a slowdown in recent times for the identified pool of assets. Toll collection for identified SPVs grew 13% on-year in fiscal 2024. For the first 7 months of fiscal 2025, toll collection growth stood at 1% as compared to corresponding period of the last fiscal. Although the growth was lower than previous expectations, it is expected to see significant improvement in the second half of fiscal 2025, and the same remains a key rating sensitivity factor. The growth remained lower-than-expected due to one-time events such as general elections and subsequent slowdown in government spending, heavy monsoon in some regions as well as impact of network developments on some of the stretches. Some impact on toll collections is also on account of delay in toll rate hike in current fiscal.

For the overall InvIT, toll collections grew ~30% and ~48% in fiscal 2024 and 7 months of fiscal 2025, respectively, on-year, driven by addition of new assets in the portfolio. Toll collections for SYTL and YATL declined by ~10% and ~12%, respectively, for 7 months of fiscal 2025 due to restriction on movement of heavy traffic through the feeder route (Kannad/Autram Ghat section) by the Aurangabad High Court Bench to prevent frequent traffic congestion in the region from August 11, 2023. Collections for PDTL also reported ~6% decline in toll revenue in 7 months of fiscal 2025 on a year-on-year basis due to diversion of traffic to alternate routes as project is under-construction leading to long traffic jams on the stretch. However, traffic is expected to resume on the project stretch once construction work is over. While toll collections for CGTL remained stagnant, it increased by ~9% for UTL for 7 months fiscal 2025 supported by healthy growth in traffic on the stretch.

Strong debt protection metrics, with provision for cash trap and creation of DSRA and MMRA
Financial risk profile is expected to be healthy, supported by comfortable average DSCR through the tenure of the debt given healthy toll collection, moderate leverage as reflected in debt-to-toll revenue of 6.1 times (as of March 2024) and debt to asset value of the identified group of assets at 42.0% (based on the InvIT debt and external valuation as on September 30, 2024). While recent pressure on toll collections has impacted near term DSCR for the identified group of assets, the same is expected to improve materially in the second half with resolution of traffic related issues. In the interim, the credit profile is expected to be supported by strong liquidity position of the InvIT. 

Debt protection metrics will also be backed by the presence of fixed price O&M and MM contract with IRBIDL till fiscal 2030. Debt servicing will be supported by cash flow pooling of all five identified projects along with YATL and SYTL.

As per the cash flow waterfall mechanism, revenue account of identified assets would be utilised firstly, towards payment of statutory dues/ taxes, followed by O&M and other payments, debt service to InvIT (if any), and DSRA obligations for the identified SPVs due to the InvIT. The balance funds are subsequently transferred to the InvIT escrow account. Further, escrow bank of SYTL and YATL would be given an irrevocable standing instruction to distribute the surplus cash to IRB Trust by depositing it into the InvIT’s escrow account charged to the InvIT debt lenders. That apart, surplus cash flows from the remaining SPVs of the IRB Trust will also be available towards meeting shortfall in servicing InvIT debt.

Terms of the financing documents stipulate maintenance of two quarters of DSRA throughout the tenure of the loan (3.75 months DSRA of ~Rs 200 crore already created and remaining to be created by September 30, 2025), upfront creation of MMRA of Rs 130 crore for 2 years, and MMRA for 3 months thereafter, cash reserve of Rs 100 crore till March 31, 2026 and full cash trap if DSCR falls below 1.30 times, providing liquidity cushion. Cash trap is stipulated if DSCR falls below 1.30 times. In case of such scenario, all the proceeds in the surplus account would be mandatorily transferred to the restricted debt service sub account (RDSSA) and released only if DSCR for next two consecutive months exceeds 1.30 times. While permitted indebtedness is allowed with lenders approval, no incremental debt is expected at the InvIT level.

Experienced management team
The identified asset pool will benefit from being part of IRB’s private InvIT, which in turn benefits from the strong sponsor and investors and IRBIDL’s asset management team having significant experience of over 25 years in Indian roads and highways space having sponsored two InvIT platforms. GIC and Cintra with 25% and 24% unitholding in the trust has extensive experience in the infrastructure space, including in India. GIC and Cintra also have stake in IRBIDL. GIC has also invested in various other assets / platforms of IRBIDL in the last few years.

Weaknesses:
Susceptibility of toll revenue to volatility in traffic or development/improvement of alternative routes
The stretches remain vulnerable to variations in traffic volume owing to the seasonal variations in vehicular traffic, diversion of traffic to any alternate routes or development of alternative routes/modes. Susceptibility to economic downturns could adversely impact the traffic volumes on the project stretch. While the stretches face some threat from alternate routes as of now, improvement of existing alternate routes or development of new alternate routes may affect traffic further. While CRISIL Ratings has adequately sensitised toll collections for risks emanating from foreseeable development of alternate routes or alternate modes of transport, higher than expected diversion on account of any of these will be key rating sensitivity factor.

Toll collection is the only source of revenue, and hence, any volatility because of factors such as toll leakage, lack of timely increase in rates, fluctuation in WPI-linked inflation could adversely impact cash flow. Toll rate hike remained subdued in this fiscal due to low WPI. Force majeure events can impact cash flow and, consequently, debt protection metrics of the projects till the time these are resolved, and tolling is resumed. For two of the stretches – SYTL and YATL, traffic remained impacted from August 2023 due to the occurrence of force majeure event [restriction on movement of heavy traffic through the feeder route (Kannad/Autram Ghat section) by the Aurangabad High Court Bench to prevent frequent traffic congestion in the region]. These risks are mitigated by remedies for force majeure events as defined in the concession agreement, however, these are typically in the form of extension of concession period and do not address possible cash flow mismatches during such events. In certain force majeure events, cash compensation is also available to the concessionaire as per the terms of the concession agreement.

Susceptibility to volatility in O&M and major maintenance costs and interest rates
The trust is exposed to risks related to maintenance of the projects in the underlying SPVs as per the specifications and within budgeted costs. While IRB Trust is expected to maintain MMRA for the first two years, any significant dip in toll collection or unplanned maintenance activity could result in cash flow shortfall during years of such maintenance and will remain a rating sensitivity factor. However, volatility is mitigated in the near-to-medium term given the presence of fixed price O&M and MM contracts signed by all SPVs with IRBIDL till fiscal 2030.

The debt has a floating interest rate linked to the benchmark, which exposes the trust to volatility in interest rates. Although the cushion in cash flow will partially absorb the impact of such fluctuations, it will remain a rating sensitivity factor.

Any other information:

Key covenants of the debt

Annexure - Details of Instrument(s)

Annexure - List of Entities Consolidated

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