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The outlook on the rating is positive.
NHAI is an Authority that has been established through an act of Parliament. It is 100% owned by the Government of India (Baa3 positive).
NHAI's issuer rating of Baa3 primarily reflects our assessment of the very high likelihood that the authority will receive support from the Government of India (Baa3 positive) in a distress situation.
"NHAI's Baa3 rating reflects NHAI's strategic importance and status as the government arm implementing the national highways strategy" says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.
"Reflecting its role, NHAI is responsible for the construction, development and maintenance of national highways network in India" Tyagi says, adding "As such, the rating considers the government's track record of providing direct funding to NHAI, and recognizes the very close operational and financial links between NHAI and the government".
Given the above factors, Moody's has assigned the same rating as the Government of India. The baseline risk of NHAI is closely related to the Indian's Government's financial strength. As a result, the baseline risk for NHAI is effectively the default risk of the Indian Government. This strong link to the Indian Government also considers the National Highways Authority of India Act that mandates the Indian government's funding commitments for NHAI.
"Accordingly, NHAI's rating further reflects Moody's expectation that financial support from the government will continue to ensure NHAI's financial viability and operational soundness," Tyagi adds.
Such expectations are underscored by NHAI's special legal status as a government-contributed entity i.e. entity with no shareholding equity, which is dependent on government funding for its operations. The government, through Ministry of Road Transport and Highways (MoRTH), maintains close control over the operations and funding of NHAI - including appointing NHAI's board members - and has no intention to privatize it.
NHAI's ratings takes comfort from the stable funding sources for NHAI including cess on sale of diesel and petrol (collected by Government of India in the Central Road Fund), revenues from operating roads including plough-back of toll revenues and revenue share for PPP projects and additional budgetary allocations.
Moody's notes that NHAI's rating would change following any changes in India's sovereign rating. Furthermore, downward rating pressure would emerge from any indications of changes to its role or status as a government-contributed entity.
Under the Moody's Joint Default Analysis (JDA) approach for government-related issuers (GRIs), our assessment of government support for the company is "Very High" and is manifested through several considerations. Specifically, NHAI status as an arm of the government which closely directs the activities of NHAI. The government also has a strong track record of support, as shown by its previous actions that include: (1) providing budgetary support and additional budgetary support (tax on petrol and diesel and ploughing back of funds from toll collection) (2) special power given to NHAI to issue bonds that qualify for capital gains tax exemptions and tax free bonds under the income tax act.
NHAI's positive outlook is consistent with the outlook on the sovereign, indicating that the rating would be upgraded if the sovereign rating is upgraded.
Upward movement for the rating could evolve if India's sovereign rating is upgraded.
Furthermore, a rating downgrade could result if India's sovereign rating is downgraded, or if there is emerging evidence of a weakening in government support for NHAI. Such scenario is unlikely and factored into our central scenario.
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