Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL BBB/Stable' rating on the long-term bank facility of Kante Waked Multi Projects Private Limited (KWMPPL; a hybrid annuity project of its sponsor Roadway Solutions India Infra Limited [RSIIL; ‘CRISIL A-/Stable/CRISIL A2+’]).

 

CRISIL Ratings had on May 13, 2022, assigned its 'CRISIL BBB/Stable' rating to the long-term bank facility KWMPPL.

 

Roadway Solutions India Infra Limited (RSIIL) has taken over the project through harmonious substitution from erstwhile sponsors MEP Infrastructure Developers Limited and Sanjose Infrastructure & Construction Private Limited Joint Venture (MEP Sanjose JV), which was stalled for around 3 years due to liquidity constraints faced by MEP Sanjose. Harmonious substitution of erstwhile sponsor MEP-Sanjose with RSIIL is also approved by the Authority i.e. MoRTH.

 

The rating reflects inherent benefits of the hybrid annuity model, receipt of substantial right-of-way (ROW), receipt of revised appointed date of the project through endorsement agreement executed by KWMPPL with MoRTH on 19.04.2022 and good execution track record of the promoter. The rating also factors in low funding risk for the project as the debt is fully tied up. These strengths are partially offset by moderate implementation risk as the project was stalled for around 3 years and the project is currently going through harmonious substitution of earlier sponsor MEP-Sanjose with new sponsor RSIIL. Thus, implementation of the project will be a key monitorable risk.

Analytical Approach

CRISIL Ratings has rated KWMPPL on standalone basis and not factored the benefit of Corporate Guarantee support of the parent as it may fall off after COD or receipt of 1st annuity of the project.

Key Rating Drivers & Detailed Description

Strengths

Inherent benefits of HAM

Benefits of HAM include stable cashflows in the form of semi-annual annuities during operations period, Mobilisation advance to the extent of 10% of BPC, cost-escalation assurance provided by the MoRTH in the construction and operational stages, provision of termination payment from the Authority in case of termination on account concessionaire as well as authority. HAM also allows for provisional commercial operations date (PCOD) to be issued upon completion of construction on the land made available up to 146 days from the AD, allowing full annuity to be paid as if the project has been completed. The concessionaire will be required to complete construction on the remaining land whenever it is made available post the PCOD. Furthermore, the HAM CA allows for change in scope on land not available within 180 days of the AD, reducing completion cost and the corresponding annuity and O&M payments while facilitating timely completion of the project. Other benefits include indexation done to the bid project cost (BPC) and O&M cost to the extent of inflation movement and interest payments on residual annuity payments in the operational period.

 

Receipt of substantial ROW and good execution track record of promoter, mitigates the implementation risk

95% of total land required for the project is available at 3H stage and balance 5% of total land is available at 3D stage, which mitigates the land acquisition risk. Though the project was stalled for around 3 years, current physical progress of the project is 20.65%. MoRTH has given its approval for harmonious substitution of earlier sponsor MEP-Sanjose with Roadway Solutions India Infra Limited (RSIIL). KWMPPL has executed endorsement agreement with MoRTH on 19.04.2022 with newly appointed date for the project as 19.04.2022 and additional 22 months’ timeline has been provided for its completion by Independent Engineer of the project. Promoter has good track record in the roads and construction sector for almost 15 years. Further, RSIIL has healthy order book of Rs. 6500 Cr under EPC as well as HAM mode. EPC agreement for the project is already executed for fixed price and fixed time, which mitigates the cost and time overrun impact on the SPV.

 

Low funding risk on account tie-up of full debt

Original Bid project cost of Rs.826 Cr has been revised to Rs.1205 Cr due to PIM escalation as per cost vetting done by LIE FP Project Management and the same has been considered by lenders for their assessment. Additional debt of Rs.142 Cr in addition to the existing debt of Rs.372 Cr, is already sanctioned by the existing lenders of the project considering revised total project cost of Rs.1205 Cr at D:E ratio of 3:1, resulting in full debt tie-up for the project. Project execution is largely being supported by funds from the sponsor of Rs.122 Cr (in addition to Rs.74 Cr which is already infused by earlier sponsor) and the construction grant from MoRTH (i.e. 40% of total BPC). 50% of the equity to be brought in upfront by the promoter, which ensures substantial share of promoter in the project at its start only. MoRTH has approved the harmonious substitution of earlier sponsor MEP-Sanjose with Roadway Solutions India Infra Limited (RSIIL). However revised Bid project cost by MoRTH is still awaited but it is expected to be in line with the cost estimated by the LIE. EPC agreement for the project is already executed for fixed price and fixed time, which mitigates the cost and time overrun impact on the SPV. Any difference arising out of cost difference between completion cost and bid project cost due to price indexation will be funded by MoRTH and sponsor (RSIIL) in the ratio of 40:60.

 

Weakness

Exposure to moderate implementation risks

The project was stalled for around 3 years and present physical progress of the project is ~20%. Through execution of endorsement agreement with MoRTH on 19.04.2022, project has resumed its construction activities at the project site. Independent Engineer of the project vide its letter dated 30.03.2022 advised that for completion of the balance works of the project, 22 months’ time is required. Considering newly appointed date of the project as 19.04.2022, SCOD is 19.02.2024.

 

The project is low to moderate in complexity with minimal structures and project’s area as plain terrain. Availability of 95% ROW, fixed-price and fixed-time EPC contract and good execution capabilities of promoter RSIIL should support implementation. However, since the project was stuck for around 3 long years, any delay or issues in project implementation will be closely monitored.

Liquidity: Adequate

Liquidity is expected to be adequate post-completion as the project will receive semi-annual annuities (along with interest) and O&M payout from MoRTH. Debt service coverage ratio is expected to be above 1 time throughout the tenure of debt. Repayment will begin nine months from PCOD/COD, which provides additional cushion. Furthermore, DSRA for 6 months’ debt servicing requirement shall be created. Furthermore, promoter RSIIL has given the Corporate Guarantee support till the entire tenor of loan, however, it may fall off after COD or receipt of 1st annuity. RSIIL has also provided an undertaking for financial support in case of cost overrun and for cash flow mismatches during the construction and operational phases.

Outlook: Stable

KWMPPL will benefit from the 95% ROW available for the project and good track record of the sponsor RSIIL; however, since the project was stalled for around 3 years, implementation of the project is a key monitorable risk.

Rating Sensitivity Factors

Upward factors

• Completion of the project on or before time (22 months from the endorsement date i.e. 19.04.2022) within the revised budgeted cost
• Creation of DSRA covering 6 months of debt servicing requirement

 

Downward factors

• Significant delay in receipt of PCOD/ commercial operation date (COD), that is beyond 22 months from appointed date resulting in cost overrun
• Weakening of the credit risk profile of Promoter RSIIL

About the Company

KWMPPL is a Special Purpose Vehicle (SPV) incorporated on November 2, 2021 and is promoted by Roadway Solutions India Infra Limited (RSIIL, rated CRISIL A-/ Stable / CRISIL A2+) for implementing a road project envisaging development of existing 2 lanes of Kante Waked Road from Km 281.300 to Km 332.200 (Total Length 50.90 Km) and construction of additional 2 lanes on either side under Hybrid Annuity model (HAM).

 

RSIIL controls 80% of the equity interest in KWMPPL. The project pavement is rigid (concrete).

 

The Concession Agreement of the project was signed by MSKWPL with Ministry of Road Transport & Highways (MoRTH) on June 28, 2016. Appointed date of the project was received on November 13, 2017 and construction period of the project is 2 years (730 days) from the Appointed Date i.e. with Scheduled Commercial Operations Date (SCOD) of November 13, 2019 and operation period of 15 years from COD. However, since the project was stalled due to inability of earlier sponsor to service the debt obligations, there has been delay in completion of the project. With the execution of endorsement agreement with KWMPPL by MoRTH on 19.04.2022, harmonious substitution is approved. As per Independent Engineer of the project, for completion of the balance works of the project, 22 months’ time is required. Considering newly appointed date of the project as 19.04.2022, SCOD is expected in Feb-2024.

About the Sponsor

RSIIL is a leading engineering and construction company with around 15 years of experience in construction of roadways. The company undertakes projects both under BOT (Built Operate Transfer) and HAM (Hybrid Annuity Model) based models.

 

Currently, RSIIL has 10 ongoing projects in roads and highway sectors (5 in EPC, and 5 HAM projects). The company recently bagged 3 HAM projects amounting to Rs 4300 crore on the Vadodara-Mumbai Expressway. These 3 projects are in preliminary stage. Currently RSIIL has healthy order book of Rs. 6500 Cr under EPC as well as HAM mode.

Key Financial Indicators

Financials as on/for the period ended March 31	Unit	2021	2020
Revenue	Rs.Crore	NA	NA
Profit after tax (PAT)	Rs.Crore	NA	NA
PAT margin	%	NA	NA
Adjusted debt/adjusted networth	Times	NA	NA
Interest coverage	Times	NA	NA

Financial indicators are not applicable as the company was incorporated in November 2021 and project operations are yet to begin

Any other information: Not applicable