| India Infrastructure Trust | ||||
| ‘CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned a ‘CRISIL AAA/Stable' rating to the proposed non-convertible debentures (NCDs) of India Infrastructure Trust (India Infra; an infrastructure investment trust [InvIT]). The corporate credit rating has been reaffirmed at ‘CRISIL AAA/Stable’.
India 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; a 1,480-kilometre cross-country pipeline) from Reliance Industries Holdings Pvt Ltd. on a going concern basis in 2019.
The InvIT is in the process of issuing NCDs of Rs. 6452 crores and the proceeds will be used entirely to refinance the NCDs of same amount maturing at the SPV level. As such, at a consolidated level, debt shall remain unchanged.
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 a 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’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 will ensure steady cash flow to PIL in case 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 GTA Capacity Charges received by PIL in a Financial Year are higher than the Contracted Capacity Payments paid by RIL during the Financial Year
The financial risk profile remains robust, with debt-to-value 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 as well as InvIT level. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of India Infra with its underlying SPV i.e. PIL. This is because the InvIT has direct control over PIL and cashflows are generated at PIL only. Furthermore, the SPV must mandatorily distribute 90% of its net distributable cash (post servicing of debt) to the InvIT, leading to highly fungible cash flows. 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:
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 pipeline of other operators such as GAIL and Gujarat State Petronet Ltd for onward delivery of gas to other parts of India.
The overall cash flows benefit from the presence of a 20-year contract with RIL for contracted capacity payments (CCPs) and the strong credit risk profile of the counterparty. The pipeline is critical to RIL given the significant investments being undertaken for ramping up the gas volumes in the Krishna-Godavari (KG)-D6 fields. The arrangement will smoothen out the cash flows in case actual gas volume is lower, or tariff rates are reduced.
Cash flow generation has improved over the nine months through fiscal 2024 on account of increased production from the KG-D6 fields. While PIL transported ~23.68 million metric standard cubic metric per day (mmscmd) of gas in fiscal 2023, volume improved to ~36.93 mmscmd over the nine months through fiscal 2024. Over the medium term, the volume could further ramp up with 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 flows are also supported by the pipeline being used by the other operators for parking / transporting natural gas.
India Infra has a comfortable financial risk profile marked by stable cash accrual, healthy debt to value ratio and strong DSCR. The debt-to-value at the consolidated India Infra level is also expected to remain within 70%, thereby restricting the debt that can be availed by PIL. Healthy cash generation by PIL will ensure a comfortable DSCR.
India Infra and PIL also has a well-defined waterfall payment structure, wherein a preference for payment of interest as well as principal on external debentures is to be given before payments are made towards debt from InvIT or to investment manager and unitholders. This lends additional support to the financial risk profile. Further, PIL will receive cash flows from RIL at the beginning of the quarter, whereas interest repayment at PIL/InvIT is scheduled at the end of each quarter, providing a cushion of three months.
The investors are protected in case of delay in payments by RIL. In such a scenario, India 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 first redeem the rated 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:
The proposed NCDs are likely to have maturity in third, fourth and fifth year which exposes the company to moderate refinancing risk. However, a 10-year tenure for the underlying assets extending beyond the repayment tenure should help comfortably refinance the debt. India Infra is expected to prudently refinance the maturing debt and maintain its healthy DSCR over the medium term.
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 the revenue. However, any escalation in O&M expenses will be directly funded by RIL while escalation in system usage gas will be recovered from amounts payable to RIL. The expense incurred is a variable cost and is directly correlated with the quantum of gas transported through the pipeline. |
Liquidity: Superior Stable cash flows are expected to amply cover debt obligations over the medium term, leading to a healthy DSCR (more than 2 times, after excluding subordinated debt and considering only CCPs) over the tenure of NCDs (five years). Furthermore, the long life of underlying assets, extending well beyond the debt tenure, should aid in refinancing at favourable terms. |
Outlook: Stable India 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 transported is also expected. |
Rating Sensitivity factors Downward factors
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About the Company India Infra is promoted by an indirect subsidiary of Brookfield Asset Management (BAM): Rapid Holdings 2 Pte Ltd (sponsor). It has acquired the entire stake in PIL. 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 (CRISIL Ratings adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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