Rating Rationale
March 23, 2021 | Mumbai
Summit Digitel Infrastructure Private Limited
'CRISIL AAA/Stable' assigned to Non Convertible Debentures
 
Rating Action
Total Bank Loan Facilities RatedRs.30000 Crore
Long Term RatingCRISIL AAA/Stable (Reaffirmed)
 
Rs.1500 Crore Non Convertible DebenturesCRISIL AAA/Stable (Assigned)
Rs.11836 Crore Non Convertible DebenturesCRISIL AAA/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs 1,500 crore non-convertible debentures (NCDs) of Summit Digitel Infrastructure Pvt Ltd (SDIPL; formerly, Reliance Jio Infratel Pvt Ltd), and has reaffirmed its ‘CRISIL AAA/Stable’ rating on the existing NCDs and long-term bank facility. 

 

The Rs 1,500 crore NCDs shall be a part of of long term debt, with total external debt for SDIPL expected to remain within Rs. 30,000 crore. Proceeds from these NCDs could be used to repay a part of the existing financial liabilities/borrowings, for capital expenditure (capex) purposes, operational expenses or any other purpose as eligible & permitted by RBI. Of the total external debt, Rs 11,836 crore have already been funded via NCDs subscribed by Reliance Industries Limited (RIL; ‘CRISIL AAA/Stable/CRISIL A1+’).

 

The rating continues to factor in SDIPL’s strategic importance to, and strong business linkages with, Reliance Jio Infocomm Ltd (RJIL; ‘CRISIL A1+’). The rating also reflects the company’s strong financial risk profile with comfortable debt service coverage ratio (DSCR). These strengths are partially offset by susceptibility to revenue and counterparty risks related to external tenants.

 

SDIPL has assured cash flow because of its long-term master service agreement (MSA) with RJIL, and faces limited downside risks to profitability given the fixed-price terms of its project execution and operations & maintenance (O&M) agreements.

 

The tower assets of SDIPL are critical for the operations of RJIL. As an anchor tenant, RJIL has entered into an agreement to contract capacity on single tenancy basis for 30 years, providing strong cash flow visibility to SDIPL.

 

Increased data usage over the medium term will create more demand for towers connected via optical fiber (fiberised backhaul). SDIPL has a larger share of fiberised towers in the industry, and therefore could attract demand from third parties as well.

 

In December 2019, Reliance Industrial Investments and Holdings Ltd (RIIHL), a wholly owned subsidiary of RIL, entered into a binding agreement with Brookfield Asset Management Inc (Brookfield) for investment of Rs 25,215 crore in Tower Infrastructure Trust, an infrastructure investment trust [InvIT]. In August 2020, the InvIT had received approval from the Department of Telecommunications (DoT) for investment by Brookfield. Thereafter, Brookfield has concluded the investment of Rs. 25,125 crore along with the listing of the InvIT as the principal sponsor of the trust.

Analytical Approach

CRISIL Ratings has considered the standalone credit risk profile of SDIPL and has factored in the regulatory requirements for special purpose vehicles (SPVs) of InvITs.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong business linkage and strategic importance for RJIL

The strategic importance of SDIPL is indicated by RJIL being the anchor tenant for all towers of the SPV (final planned capacity is 175,000 towers; current capacity is around 136,000 towers) which shall comprise a substantial share of the total tenancies of the company. RJIL shall have the option to buy back the assets at the end of 30 years. The rapid consumption of high speed data will increase demand for towers with fibre backhaul. Given that SDIPL has a significantly higher share of towers with fiberised backhaul vis-à-vis the industry, RJIL derives greater competitive advantage. SDIPL will also play a critical role in the faster adoption of 5G technology.

 

RJIL shall also have a strong economic incentive from third party tenancies, which enhances the strategic importance of the SPV. The O&M and project execution partner (Jio Infrastructure Management Services Ltd) also being a Reliance group entity underscores the business linkages.

 

  • Stable cash flow visibility and limited downside risks to profitability

The long-term MSA with RJIL ensures stable revenue for SDIPL, with upside to revenue coming from contracting third-party tenancies. The fixed tower usage fees and O&M costs and pass-through of any increase in site rentals to tenants (including RJIL) protect profitability. Additionally, project execution risks are being borne by the contractor and towers are transferred to SDIPL only post completion and at a fixed price.

 

  • Comfortable financial risk profile

SDIPL has a comfortable financial risk profile driven by stable cash accrual, and a strong DSCR for external debt (including NCDs), based on revenue from just the anchor tenant. The long-term loans and earlier NCDs have a moratorium of two years, followed by repayment over 10 years. Investment by the InvIT will be fully subordinate to external debt and will not have a definite schedule for principal repayment or interest payments.

 

Weakness:

  • Susceptibility to revenue and counterparty risks related to external tenants

Massive consolidation and exits in the Indian telecom industry could constrain the third-party tenancies for SDIPL. Moreover, the telecom sector is susceptible to technological changes and is competitive, which could impact cash accrual and thereby leverage ratio of telecom companies. This may expose SDIPL to counterparty risks related to external tenants. Nevertheless, SDIPL has a strong DSCR for the rated external debt based on revenue from just the anchor tenant.

Liquidity : Superior

Stable cash flow with minimum downside risks will amply cover debt obligation, leading to a healthy DSCR for the rated senior external debt, based solely on revenue from the anchor tenant. This, along with the high quality and long life of the assets well beyond the tenure of the debt, should help refinance at favourable terms, if required.

Outlook: Stable

SDIPL will continue to benefit from stable cash flow due to the long-term tower use agreement with RJIL.

Rating Sensitivity factors

Downward Factors

*Downgrade in RJIL's rating by one or more notches

*Any change in the strategic importance of SDIPL to RJIL

About the Company

SDIPL is an SPV formed by transfer of tower assets and a portion of liabilities by RJIL. In December 2019, RIIHL entered into a binding agreement with Brookfield for investment of Rs 25,215 crore by the latter in the units issued by the Tower Infrastructure Trust. After the completion of investment of Rs 25,215 crore by Brookfield, Tower Infrastructure Trust holds 100% stake in SDIPL.

Key Financial Indicators

Particulars

Unit

2020

2019

Revenue

Rs crore

NM

NM

Profit After Tax (PAT)

Rs crore

NM

NM

PAT Margin

%

NM

NM

Interest coverage

Times

NM

NM

Adjusted debt/Adjusted networth

Times

NM

NM

 NM: Not meaningful

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity

level

Rating assigned with outlook

NA

Proposed long-term bank loan facility

NA

NA

NA

30,000

NA

CRISIL AAA/Stable

INE507T07054

Non-convertible debentures

15-Mar-2021

SBI MCLR+ 0.97%

31-Aug-2032

11,836

Complex

CRISIL AAA/Stable

NA

Non-convertible debentures*

NA

NA

NA

1,500

NA

CRISIL AAA/Stable

*Yet to be issued

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 30000.0 CRISIL AAA/Stable   -- 28-08-20 CRISIL AAA/Stable 25-11-19 CRISIL AAA/Stable   -- --
      --   --   -- 29-10-19 CRISIL AAA/Stable   -- --
      --   --   -- 16-05-19 CRISIL AAA/Stable   -- --
Commercial Paper ST   --   --   -- 29-10-19 Withdrawn   -- --
      --   --   -- 16-05-19 CRISIL A1+   -- --
Non Convertible Debentures LT 13336.0 CRISIL AAA/Stable   -- 28-08-20 CRISIL AAA/Stable   --   -- --
All amounts are in Rs.Cr.
 
 
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 30000 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility 30000 CRISIL AAA/Stable
Total 30000 - Total 30000 -
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Understanding CRISILs Ratings and Rating Scales

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