Detailed Rationale

CRISIL Ratings has assigned its ‘Provisional CRISIL AAA/Stable' rating to the proposed long-term bank facility of Nxt-Infra Trust (NIT), an infrastructure investment trust (InvIT) comprising of roads sector assets sponsored by Actis Highway Infra Ltd (AHIL, or Sponsor) with Walter Infra Manager Private Limited (WIMPL) as its Investment Manager, Walter Infra Project Manager Private Limited (WIPMPL) as its Project Manager and Catalyst Trusteeship Limited as the trustee.

 

The rating reflects a strong and diversified portfolio of five hybrid annuity model (HAM) road assets and one toll asset proposed to be transferred to the trust by the sponsor, AHIL. The HAM portfolio has steady revenue stream supported by operational track record of receiving at least four annuities and has strong counterparty, National Highways Authority of India (NHAI; ‘CRISIL AAA/Stable’) for four out of five assets. The toll road asset benefits from its favourable location and healthy revenue visibility, and good mix of passenger and commercial vehicles. These factors, coupled with adequate leverage, will result in comfortable debt protection metrics. Terms of the proposed financing documents stipulate maintenance of three-month debt service reserve account (DSRA) and cash trap if the debt service coverage ratio (DSCR) falls below 1.30 times, cushioning liquidity. As per the terms, debt will be capped in line with the SEBI InvIT regulations, presently at 49%. 

 

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 which could impact revenue and DSCR. The DSCR will also remain vulnerable to volatility in operations and maintenance (O&M) cost and interest rates. Although, coverage indicators will be safeguarded to some extent owing to natural hedge, as the interest on annuities is linked to bank rate.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of NIT and its underlying special-purpose vehicles (SPVs), in line with its criteria for rating entities in homogeneous groups. This is because the trust has direct control over the SPVs and has infused funds in them (in the form of infrastructure investment trust [InvIT] loans) to repay debt. Furthermore, the SPVs will distribute their surplus cash flow to the InvIT in the form of interest and repayment (on InvIT loan) and dividend, leading to highly fungible cash flow. Also, as per SEBI regulations, the cap on borrowings has been defined 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

• Healthy operational track record of assets along with strong counterparty: The portfolio comprises five HAM assets, which have operational track record of more than two years and runs across five states/union territories. Additionally, the portfolio has a toll asset, which started tolling from March 2022. The balance concession period for the assets ranges from 8 to 13 years, which will provide long-term cash inflow to InvIT. The assets have a combined length of ~610 km (around 2,100 lane km) and combined collections of Rs 837 crore in fiscal 2023. Revenue stream is diversified with around 40% coming from toll collection and the remaining through annuity income.

 

While the toll asset contributes substantially to the revenue of the InvIT, it benefits from its favourable location, being the shortest route connecting Delhi to Panipat. Furthermore, the asset has a good mix of passenger (57%) and commercial (43%) traffic. Traffic registered modest growth of around 2.5% for the first 10 months of fiscal 2024 owing to heavy rainfall in north India, floods and landslides in Himachal Pradesh, diversion to alternate routes – Trans-Haryana Expressway and Karnal Meerut stretch (national highway [NH] 709), and more recently, farmer protests. Nevertheless, traffic is expected to witness improvement of 8-9% next fiscal with tolling of the Karnal-Meerut stretch starting in November 2023 and resolution of some other issues.

 

The inherent benefits of HAM provide stability and predictability to the remaining 60% of the revenue. Four of the five HAM SPVs have NHAI as the counterparty and annuity payments for these projects have been received without any material deduction with an average delay of around one month (including grace period of 15 days). Significant delays or material deductions in future annuities may affect the debt protection metrics and will remain a rating sensitivity factor.

 

• Healthy debt protection metrics, with provision for cash trap and creation of DSRA

The financial risk profile will be driven by comfortable average DSCR throughout the tenure of the debt given healthy toll collection, steady annuity receipts and moderate leverage expected at the trust level. The leverage of the InvIT was comfortable at 49% (based on the proposed InvIT debt and external valuation as on September 30, 2023) in line with SEBI regulations. Proposed debt of ~Rs 3,300 crore will be used for refinancing the project debt. Additionally, debt of Rs 1,079 crore is expected to be drawn for funding major maintenance over the next 10 years. The proposed debt terms also require adequate liquidity cushion in the form of three-month DSRA and cash trap if DSCR falls below 1.30 times.

 

Weaknesses

• Susceptibility of toll revenue to volatility in traffic or development/improvement of alternative routes; exposure to state counterparty risk

The toll asset has a sizeable contribution to NIT’s overall revenue and is susceptible to volatility because of competing routes, lack of timely increase in toll rates, fluctuations in wholesale price index-linked inflation, seasonal variations in vehicular traffic and economic downturns. The stretch remains exposed to alternative route risk with two upcoming alternative routes (Delhi-Amritsar-Katra Expressway and Delhi-Panipat Regional Rapid Transit System [RRTS]). While CRISIL Ratings has adequately sensitised toll collection for risks emanating from foreseeable development of alternative routes or alternative modes of transport, higher-than-expected diversion will be a key rating sensitivity factor.

 

The trust has one HAM project - Welspun Road Infra Pvt Ltd (AM2), wherein the Public Works Department (PWD), Government of Maharashtra (GoM), is the counterparty. For AM2, while annuities have been received with average delay of around one month (excluding exceptional delay of 142 days for first annuity), there have been net deductions of ~Rs 26 crore over the last two annuities on account of different consumer price index values used for computation of annuity. As indicated by the management, the deducted amount is attributable to the previous concessionaire and is likely to be recovered. Nevertheless, the contribution of this asset to the overall revenue of the trust is limited to 14%.

 

• Vulnerability 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 the budgeted cost. Significant dip in toll collection or unplanned maintenance activity could result in cash flow shortfall and will remain a rating sensitivity factor. Fixed price O&M agreements for the next three years for HAM projects mitigates the risk to some extent.

 

Reduction in the bank rate, which may be witnessed, can impact the DSCR given that a large proportion of the cash inflow is from interest on balance annuities. Furthermore, as operation cost depends on inflation and the proposed rupee term debt has a floating interest rate with three monthly reset linked to benchmark, any significant increase in these components could impact cash flow. Although, coverage indicators will be safeguarded to some extent owing to natural hedge, as the movement in interest rate on borrowing, which is linked to external benchmark, and the interest on annuities, which is linked to bank rate, shall move in the same direction.

Liquidity: Superior

Toll collection and annuity receipts will comfortably cover operational expenses and debt obligation. Furthermore, DSRA equivalent to interest and principal obligations of three months will be maintained. Liquidity will be supported by the cash trap provision if DSCR falls below 1.30 times.

Outlook Stable

CRISIL Ratings believes the toll asset of NIT will continue to generate healthy toll revenue over the medium term, backed by good traffic potential on the project stretch, and HAM assets will continue to benefit from timely receipt of semi-annual annuities.

Rating Sensitivity factors

Downward factors

• Decline in revenue by more than 10-12% on sustained basis due to lower toll collections and/or considerable deduction or delays in receipt of annuities
• Higher-than-expected maintenance cost weakening the DSCR
• Higher-than-expected incremental borrowing or debt-funded acquisition without commensurate revenue potential impacting overall DSCR
• Non-adherence to the structural features of the transaction

Additional disclosures for the provisional rating

The provisional rating is contingent upon occurrence of the following:

• Completion of the offer and listing of the InvIT
• Transfer of the shareholding in the proposed SPVs to the InvIT
• Refinancing of the existing debt at underlying SPVs with proposed debt 

The provisional rating shall be converted into a final rating after receipt of transaction documents duly executed and confirmation on completion of pending steps within 90 days from the date of completion of offer through which the InvIT completes its fundraising and issues units.

 

The final rating assigned post conversion shall be consistent with the available documents and completed steps. In case of non-completion of steps or non-receipt of the duly executed transaction documents within the specified timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days in line with its policy on provisional ratings.

Rating that would have been assigned in the absence of the pending documentation

In the absence of pending steps/documentation considered while assigning the provisional rating as mentioned above, CRISIL Ratings would not have assigned any rating.

Risks associated with the provisional rating:

The prefix Provisional indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take an appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on case-to-case basis. In the absence of the pending steps / documentation, the rating on the instrument would not have been assigned ab initio.

About the Trust

NIT is registered as an irrevocable trust under Indian Trust Act, 1882, and as an InvIT under the SEBI Infrastructure Investment Trust Regulations, 2014, since November 8, 2023. AHIL is the sponsor, WIMPL is the investment manager and Catalyst Trusteeship Limited is the trustee of the InvIT.

 

Subject to the receipt of requisite approvals, the InvIT intends to acquire 100% of the equity shares in the five project SPVs from the sponsor [Nxt-Infra CGRG Highways Ltd (CGRG), Welspun Delhi Meerut Expressway Pvt Ltd (DME), Nxt-Infra GSY Highways Ltd (GSY), Nxt-Infra CT Highways Pvt Ltd (CT), Welspun Road Infra Pvt Ltd (AM2)] and 49% in Nxt-Infra MCP Highways Pvt Ltd (MCP). Remaining 51% shareholding in MCP is expected to be acquired subject to approval from NHAI.

 

Additional disclosures in case of provisional ratings for InvIT

The broad details of the group of assets identified by the trust are as follows:

 

Nxt-Infra MCP Highways Pvt Ltd

Incorporated in September 2019 to implement six to eight-laning of Mukarba Chowk Panipat section of NH-1 (new NH-44) from 15.50 km in Delhi to 86.00 km in Panipat, Haryana, for a length of 70.50 km under National Highways Development Project (NHDP) Phase IV PPP on build-operate-transfer (BOT) basis. Initially, the project was awarded to Essel Infraprojects Ltd (EIL) through a concession agreement dated August 28, 2015. The concession was 17 years including construction period of 2.5 years. The project remained incomplete and under the harmonious substitution of NHAI’s sponsor guidelines, the substitution agreement was executed on June 8, 2020. The project was then awarded to Welspun Enterprises Ltd (WEL). Subsequently, AHIL acquired 49% stake in the asset in February 2023. The project has achieved its provisional commercial operations date (PCOD) on March 31, 2022; it is now 100% complete and has received PCOD 3 on February 1, 2024. The project will receive final COD post completion of punch-list item work. There are few alternate routes to the project stretch.

 

Traffic registered modest growth of around 2.8% for the first 10 months of fiscal 2024 owing to heavy rainfall in north India, floods and landslides in Himachal Pradesh, diversion to alternate routes – Trans-Haryana Expressway and Karnal Meerut stretch (national highway [NH] 709), and more recently, farmer protests.

 

Nxt-Infra CGRG Highways Ltd

CGRG, an SPV incorporated by MBL Infrastructures Ltd, has been granted a 17-year concession (including a two-year construction period) by NHAI for four-laning of the 17.9 km stretch of Chutmalpur - Ganeshpur section of NH-72A and 35.4 km stretch of Roorkee - Chutmalpur - Gagalheri section of NH-73 in Uttarakhand and Uttar Pradesh, respectively. The PCOD for the stretch was received on August 5, 2020, and it had a track record of receiving six annuities as on January 31, 2024.

 

Nxt-Infra GSY Highways Ltd

GSY, an SPV incorporated by MBL Infrastructures Ltd, has been granted a 17-year concession (including two-year construction period) by NHAI for four-laning of the 51.46 km stretch of Gagalheri-Saharanpur-Yamunanagar section of NH-73 up to the Haryana border in Uttar Pradesh. The PCOD for the stretch was received on October 31, 2020, and it had received six annuities as on January 31, 2024.

 

Welspun Delhi Meerut Expressway Pvt Ltd

DME was incorporated in February 2016 as an SPV of WEL to undertake development, operation, and maintenance of the existing NH 24 stretch, from km 0.00 to km 8.36 up to Delhi – UP border section of NH-24 in Delhi, by six-laning of the expressway and four-laning either side of the expressway thereof on design, build, operate and transfer (hybrid annuity) basis. The PCOD of the project was achieved on June 28, 2018, and it has a track record of receiving 11 annuities as on January 31, 2024.

 

Nxt-Infra CT Highways Pvt Ltd

The SPV was set up to undertake four-laning of Chikhali-Tarsod (package-IIA) section of NH-6 (new NH-53) from km 360.00 to km 422.70 in Maharashtra to be executed on design, build, operate and transfer (hybrid annuity) basis. The PCOD of the project was achieved on August 25, 2021, and it has a track record of receiving four annuities as on January 31, 2024.

 

Welspun Road Infra Pvt Ltd

AM2 was incorporated on September 28, 2018. The SPV entered into a concession agreement dated January 10, 2019, with PWD, GoM, with appointed date of May 28, 2019. The project was awarded under HAM with concession period of 10 years (excluding construction period) from PCOD, November 11, 2021. The project involved improvement and maintenance of nine distinct packages in Amravati, Akola and Wardha district. It has a track record of receiving four annuities till January 31, 2024.

Key Financial Indicators^

Particulars	Unit	2023	2022
Revenue	Rs crore	NA	NA
Profit after tax (PAT)	Rs crore	NA	NA
PAT margin	%	NA	NA
Adjusted debt / adjusted networth	Times	NA	NA
Adjusted interest coverage #	Times	NA	NA

Past financial data is not available as the trust has recently been registered and assets are yet to be acquired

List of covenants

• Minimum DSCR of 1.30 times
• Debt-to-enterprise value (EV) less than 49%

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Nxt-Infra CGRG Highways Ltd	100%	100% subsidiaries
Welspun Delhi Meerut Expressway Pvt Ltd	100%
Nxt-Infra GSY Highways Ltd	100%
Welspun Road Infra Pvt Ltd	100%
Nxt-Infra CT Highways Pvt Ltd	100%
Nxt-Infra MCP Highways Pvt Ltd	100%	While the current shareholding is 49% and remaining 51% shareholding is expected to be acquired subject to approval from NHAI.