National Highways Authority of India Rating Reaffirmed
Rating Action
& Through different modes including public issue of Bharatmala bonds 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 tax-free bonds and long-term borrowing programme of National Highways Authority of India (NHAI). CRISIL Ratings has withdrawn its rating Rs 15759 crore long term borrowing programme which have been redeemed by NHAI. This withdrawal is based on independent confirmation and withdrawal request from NHAI.
The rating continues to reflect NHAI’s strategic importance to the Government of India (GoI), and its strong financial flexibility driven by continued support from the government. These strengths are partially offset by increasing indebtedness. |
Analytical Approach The rating on NHAI factors in support from GoI. CRISIL Ratings believes NHAI will receive distress support from GoI for timely repayment of debt and interest servicing, considering the entity’s strategic role in implementation of the nation’s road sector programmes.
For arriving at the rating of NHAI, CRISIL Ratings has combined the business and financial risk profiles of NHAI with DME Development Ltd (DME; rated CRISIL AAA/Stable). This is because NHAI has extended letter of comfort for DME’s debt and, operational and financial support would be extended to DME Development as the project is strategically important to NHAI.
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:
NHAI, constituted by an act of Parliament, is the nodal agency for implementing the road programmes for the government. GoI has statutory and regulatory powers over NHAI and supports it in major policy decisions. GoI has identified road sector reforms as a key area for removing infrastructure bottlenecks and provide momentum to the economic growth. NHAI is thereby entrusted with implementation of the Bharatmala programme which aims to construct 34,800-km of roads between fiscals 2018 and 2022 at an estimated cost of Rs 5,35,000 crore. National Highway Development Project (NHDP), worth over Rs 2,47,000 crore, which was helmed by NHAI was one of the largest infrastructure projects in the country which has been merged with Bharatmala programme.
NHAI has strong financial flexibility, predominantly because of continuous support from GoI for its projects, by way of allocation of fuel cess funds and budgetary resources, as well as flexibility to raise funds through capital gains bonds and tax-free infrastructure bonds.
NHAI received Rs 23,882 crore of the cess funds in fiscal 2021. Cess income till February 2022 was around Rs 35,510 crore while borrowings for the period were Rs 66,340 crore. NHAI also receives additional budgetary support for the development of national highways, and grants and loans for execution of externally aided projects. The funds provided by GoI are used for servicing debt and meeting capital and operational expenses. NHAI also receives project revenues i.e. ploughing back of funds from toll collection, negative grant, and revenue sharing. Stability in budgetary support for meeting expenses will remain a key rating sensitivity factor.
NHAI also has options to raise funds though monetising its operational assets – three bundles of operational road assets have been monetised through the toll-operate-toll (TOT) model. NHAI also raised funds through Infrastructure Investment Trust (InvIT) route in October 2021 which reduced dependence on borrowings.
NHAI is one of the four bodies authorised to float bonds that qualify for capital gains tax exemption under Section 54 EC of the Income Tax Act, 1961. Furthermore, NHAI raised masala bonds in the international market in fiscal 2018 at a competitive coupon rate of around 7.3%, indicating that the entity is perceived to be a critical arm of GOI.
Weakness:
NHAI’s expenditure has grown at a CAGR of 29% over last six years. This, along with moderate allocation of cess towards NHAI, has resulted in increased dependence on Internal and Extra Budgetary Resources (IEBR) to be arranged by NHAI and has thereby resulted in increase in its borrowings. Consequently, gearing increased to 1.06 time as on Dec 31, 2021, from 0.21 times as on March 31, 2015. Dependence on debt is expected to continue on account of implementation of the Bharatmala programme. However, NHAI will continue to enjoy healthy financial flexibility on account of support from the GoI in the form of cess allocation and additional budgetary support. Given increasing debt levels and debt obligations, timely infusion of funds by GoI for meeting debt servicing will remain a key rating sensitivity factor.
Apart from high debt, NHAI has sizeable contingent liabilities, most of which are from disputed claims filed by contractors/developers. The final quantum and timing of the settlement of these claims could have a bearing on NHAI’s cash flows and would remain a key monitorable. |
Liquidity: Superior NHAI receives funds from GoI in the form of cess allocation, additional budgetary support, and plough back of toll and TOT, and also raises funds from the market at competitive rates. Budgeted cess and additional budgetary support from government will comfortably cover the debt servicing of about Rs 31000 crore in fiscal 2023. NHAI had cash and bank balance of Rs 12241 crore as on February 2022. NHAI also has overdraft limits of Rs 4500 crore sanctioned to meet exigencies in case of delay in receipt of cess funds. NHAI is an important arm of GoI for implementation of road sector reforms, and CRISIL Ratings believes GoI will provide support to NHAI to meet debt obligation. |
Outlook: Stable CRISIL Ratings believes NHAI will continue to receive direct and indirect support from GoI for the implementation of road development programmes. |
Rating Sensitivity factors Downward factors:
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About NHAI NHAI, set up under the National Highways Authority of India Act, 1988, began operations in February 1995. It is responsible for developing, maintaining, and managing national highways. NHAI is mandated to implement NHDP (now merged with Bharatmala) and Bharatmala, and is responsible for implementing other national highway projects, mainly those ensuring connectivity with major ports. NHAI awards projects for development on an engineering-procurement-construction and build-operate-transfer (BOT) toll and annuity basis, as well as projects on a hybrid–annuity basis and also on TOT basis. |
Key Financial Indicators
(Annual report for fiscal 2021 is not yet published) |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
#raised through NSSF & Bank loan *Not applicable
Annexure - Details of rating withdrawn
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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