Fitch Assigns Rating to IRB Surat Dahisar Tollway's Bank Loans

Fitch Ratings has today assigned a 'BBB(ind)' rating to IRB Surat-Dahisar Tollway Private Limited's (IRB-SDTPL) long-term bank loans aggregating INR19.56bn. The Outlook on the ratings is Stable.

IRB-SDTPL is a special purpose vehicle created by IRB Infrastructure Developers Ltd. (IRBIDL - 90%), rated 'A-(ind)' (A minus(ind)) and Deutsche Bank (10%) for implementing a project to widen the Surat-Dahisar section of the National Highway-8 (NH8) on a Design-Build-Finance-Operate (DBFO) basis. The IRB Group specialises in constructing and operating toll roads.

The project loan rating incorporates a number of strengths. Among the strengths are cash flows generated by the operating toll road, most of which must be used to fund capital expenditures during the construction period, as well as the traffic flow that emanates from one of India's premier national highways. National Highway-8 (NH-8) forms part of the high profile golden quadrilateral project of the NHAI, connecting two of the largest Indian cities (Mumbai and Delhi), and passing through the highly industrialised states of Maharashtra and Gujarat. A corporate guarantee on the loan is also recognised for its credit enhancement value (rather than credit substitution), since the holding company has multiple project exposures, and the support does not delineate a clear mechanism for ensuring timely debt service payment on an on-going basis.

Key project completion risks that constrain the rating include a sizable capex programme which is being financed through a highly leveraged capital structure, resulting in a base case expectation for only modest debt service coverage by net toll revenues. This risk is coupled with a mandatory revenue sharing mechanism with the National Highways Authority of India (NHAI) embedded within the concession agreement, and which diverts cash flows that would otherwise be available for debt service. As with most Indian project finance loans, a tight loan amortisation schedule and frequent interest reset periods weaken the projected financial performance.

Widening of the existing 4-lane highway to six-lanes, even as heavy traffic continues to use the road, will represent a major challenge particularly since this is one of the largest stretches bid out by the (NHAI) to a private developer and certainly the biggest project that the sponsor group has undertaken. Approximately 60% of the Right of Way (ROW) required for road widening is available and NHAI's ability to hand over the balance in a timely manner will be crucial for ensuring timely completion.

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