Fitch Rates Overseas Infrastructure's Bank Loans 'BBB-(ind)'/'F3(ind)'

Fitch Ratings has today assigned Overseas Infrastructure Alliance (India) Private Limited (OIAPL) a National Long-term Rating of 'BBB-(ind)' with a Stable Outlook. At the same time, the agency has assigned ''BBB-(ind)/F3(ind)' ratings to the company's non-fund based working capital facilities aggregating to INR3,800m.

OIAPL's ratings factor in its net cash levels (FY09: INR333m; FY08: INR48m), low counter-party risk on account of executing projects only under a line of credit by the Indian Government and growing revenues and EBITDA (FY09 growth: 42% and 60% in revenues and EBITDA, respectively). Low working capital and low capex requirements have enabled positive free cash flow (FCF) for OIAPL till now. The company has high revenue visibility with an order book of USD477m (INR23.4bn approximately) which is 12.3 times its FY09 revenues.

The company's ratings are constrained by its small size and limited track record (it started operations in FY08). The company faces high concentration risk as well as country risk as its order book is comprised of only two projects in just one country- Ethiopia. OIAPL also has a key man risk - its operations might suffer in the absence of its chairman, Mr V B Soni, an ex-Indian ambassador to several foreign countries.

Also, managing the planned high growth may be challenging for the company. Despite the strong growth expected on the back of its order book, the company's operating margins are expected to decrease in FY10 due to relatively lower margins on new projects. The company is currently working only on fixed-price contracts that could lead to earnings volatility; however, the risk is mitigated by OIAPL's policy to sub-contract the entire project with similar fixed price contracts. The 100% sub-contracting policy also mitigates the forex risk as the receipts and sub-contracting payments are all in USD.

Positive rating drivers include a longer track record of managing growth while maintaining profitability and low financial leverage and sustaining an order book with low concentration risk. Negative rating drivers include an inability to execute projects according to plan, an inability to maintain a robust order book and erosion of EBITDA margins leading to lower interest coverage ratio.

OIAPL is a project development and management company and was incorporated in 1989. Its head office is in Delhi and it also has an overseas office in Ethiopia. In FY09 it reported a 42% increase in revenue to INR1,904m and posted an EBITDA of INR268m with EBITDA margins of 14%. It has a net margin of 6.4%.

Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including over 3,200 banks and 2,200 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings’ financial institution coverage universe.

Fitch India has Five rating offices located at Mumbai, Delhi, Chennai, Kolkata and Bangalore. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.