India Infradebt Limited Rating Reaffirmed
Rating Action
1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable’ rating on the debt instruments of India Infradebt Limited (Infradebt), an infrastructure debt fund set up through the non-banking finance company route (IDF-NBFC).
CRISIL Ratings has also withdrawn its rating on NCDs of Rs 1300 crore, at the company's request as the same have matured and repaid by the company (See Annexure 'Details of Rating Withdrawn' for details). The withdrawal is in line with CRISIL Ratings’ withdrawal policy.
The ratings continue to reflect the focused and predictable business model of Infradebt, its experienced management team and expectation of prudent management policies, and comfortable capitalisation.
Under the Reserve Bank of India’s (XRBI) August 2020 Resolution Framework for Covid-19-related Stress, Infradebt has invoked restructuring for one account currently having outstanding of Rs 139 crore (0.9% of the loan portfolio as on March 31, 2022). The ability of the company to manage collections and asset quality will remain a key monitorable. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of Infradebt. |
Key Rating Drivers & Detailed Description Strengths:
In addition to tripartite-backed public-private partnership (PPP) projects, IDF-NBFCs are permitted to invest in (i) Public-private-partnership (PPP) infrastructure projects without a project authority and (ii) Non-PPP infrastructure projects, however they can finance only projects that have completed at least one year of satisfactory commercial operations. Such investments will not have asset quality protection through the in-built credit enhancement provided by the tripartite agreement, thereby exposing IDF-NBFCs to the inherent risks in these projects. Nevertheless, asset quality of these operational projects is expected to remain stable, given lower risks compared to non-operational projects.
Given that IDF-NBFCs are permitted to refinance operational projects across the spectrum, it has resulted in greater diversification in the business plan of Infradebt, across both sectors and projects. The company, nevertheless, proposes to diversify only into assets that carry low credit risk and/or in sectors with a good recovery track record such as solar, wind, and transmission projects. Assets in the renewables sector, which are expected to constitute a significant portion of the non-tripartite portfolio, will have average credit quality equivalent to CRISIL Ratings adequate-safety category and a minimum investment-grade rating. Additionally, there could be selective exposure to assets in the hotels and hospitals sectors, among others. The category of the projects, which are not backed by tripartite agreements, will have average credit quality equivalent to CRISIL Ratings adequate-safety category. Infradebt’s business model will, therefore, remain focused and predictable.
Infradebt has a strong professional management team that has been able to build the business in a niche segment. Management is expected to follow prudent policies in scaling-up and diversifying the portfolio.
Capitalisation, as measured by the leverage ratio, remains an important driver of the credit risk profile of Infradebt. As per the regulatory framework, the fundamental element of asset protection through lending to the operational projects (with at least one year of satisfactory commercial operations) enables IDF-NBFCs to operate at a higher leverage than other NBFCs. Infradebt had a gearing of 6.0 times as on March 31, 2022 (5.9 times a year earlier). CRISIL Ratings’ has factored in a leverage of 9 times in the initial years of operation, with scope for the leverage to increase as enforceability of the tripartite agreement is established and business performance is demonstrated. CRISIL Ratings believes the leverage provides healthy coverage against potential asset-side risks. Further, Infradebt has demonstrated its ability to raise additional equity capital in the past. Networth stood at Rs 2386 crore as on March 31, 2022 (Rs 2099 crore a year earlier).
Weakness:
Concentration limits for tripartite-backed projects allow IDF-NBFCs to refinance up to 50% of their total capital funds in individual projects, with additional exposure permitted through Board and RBI approval depending on the quantum. However, in non-tripartite backed projects, IDF-NBFCs can invest a maximum of 25% of owned funds in a single project, and 40% of owned funds in projects of a single group of borrowers. The company remains vulnerable to concentration risks inherent in its wholesale loan book. As on March 31, 2022, the top 10 exposures accounted for 31% of the loan book (29% a year earlier).
As on March 31, 2022, Infradebt had exposure of Rs 258 crore to the two operating special purpose vehicles (SPVs) of Infrastructure & Leasing Financial Services (IL&FS) group, which have been classified as stage II and stage III respectively. Of the two SPVs, one has been restructured under RBI’s August 2020 Resolution Framework for Covid-19-related Stress. Management expects full resolution of the stage - III asset during early of fiscal 2023.
Overall asset quality remains comfortable with gross stage 3 asset at 0.8% as on March 31, 2022 (0.9% a year earlier). Infradebt has provided 30% against this as on March 31, 2022. The collection efficiency remains healthy at more than 99% in fiscal 2022 (excluding stage III assets). Also, almost all the projects continue to have adequate liquidity buffer in the form of debt service reserve account (DSRA) and/or working capital lines and also have a strong sponsor support.
The company has adequate risk mitigant available in all its exposures; performance in the current operating environment will remain a key monitorable. |
Liquidity: Superior Infradebt is expected to have limited asset-liability mismatches, in line with regulations, as it is expected to continue to raise primarily long-term funds with a minimum five-year maturity. As on March 31, 2022, the structural liquidity position of the company is positive in all segments up to one year. Further, IDF-NBFCs can raise shorter tenure bonds and commercial paper only to the extent of a maximum of 10% of their total borrowings. The company had nil short-term borrowings (with original maturity less than one year) as on date.
As on April 30, 2022, the company had upcoming debt obligations (including interest payment) of Rs 1990 crore till October 31, 2022, against which it has liquidity available in the form of cash/cash equivalents and liquid mutual funds of ~Rs 2,135 crore. Also, liquidity is supported by expected principal repayments from the loan book of Rs 440 crore for the above period. Furthermore, CRISIL Ratings believes Infradebt will follow a prudent liquidity policy. |
Outlook: Stable CRISIL Ratings believes Infradebt will operate within the well-defined business and financial contours as outlined by the business plan and will benefit from its experienced management team and prudent policies. The outlook may be revised to 'Negative' in case of material deviations from the business plan or weaker-than-expected asset quality. |
Rating Sensitivity factors Downward factors
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About the Company Infradebt received its IDF-NBFC license in February 2013. It is a joint venture of ICICI Bank Ltd ('CRISIL AAA/CRISIL AA+/Stable'), Bank of Baroda ('CRISIL AAA/CRISIL AA+/Stable), Citicorp Finance (India) Ltd ('CRISIL AAA/Stable/CRISIL A1+'), and Life Insurance Corporation of India.
For fiscal 2022, Infradebt reported a profit after tax of Rs 306 crore and total income of Rs 1443 crore, against Rs 276 crore and Rs 1306 crore, respectively, for the previous fiscal.
The portfolio stood at Rs 14,711 crore as on March 31, 2022 (Rs 12,810 crore a year earlier). |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Not yet issued
Annexure – Details of rating withdrawn
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Criteria Details
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