ICRA assigns IrAAA rating to RInfra InvIT Fund

Ratings agency ICRA has assigned a long term rating of IrAAA to the Anil Ambani-led Reliance Infrastructure Rs 2,500 crore InvIT Fund.
"The IrAAA rating carries a stable outlook. The rating assigned reflects the strength of the seven operational road SPVs proposed to be included under the RInfra InvIT," ICRA said in a statement here today.
The seven SPVs are DS Toll Road, JR Toll Road, NK Toll Road, SU Toll Road, TD Toll Road, TK Roll Road and GF Toll Road (Haryana state toll project).
"The issuer rating takes into account the benefit of cash flow pooling achieved on account of the irrevocable and unconditional shortfall undertaking/guarantee from the RInfra InvIT and the sizeable reduction in the consolidated debt of the InvIT post initial public offer," it said.

ICRA said the rating is supported by InvIT's strong debt coverage indicators providing ample cushion for external debt servicing in the event of wide fluctuations in toll collections. Further, low level of leveraging and high tail period of around eight years provides financial flexibility.
The consolidated external debt across the seven SPVs stood at around Rs 2,476 crore as on March 31, 2017 which is expected to reduce to Rs 680 crore post repayment of debt by the InvIT.

All the external debt in GF, TD and TK would be replaced by debt from InvIT, while for the other four projects namely DS, JR, NK and SU there would be partial reduction in external debt (between 50-60% for each SPV). Thus DS, JR, NK and SU will remain the entities with external debt post InvIT formation, the statement said.

"The operational nature of the underlying assets eliminates construction risks. From debt coverage point of view, the external debt will have the benefit of surplus cashflows from all the underlying SPVs on account of the irrevocable and unconditional guarantee from the RInfra InvIT," the rating outfit said.
ICRA noted the rights of the RInfra InvIT as a debt holder in the SPVs will be subordinated to the external debt in all respects (principal repayment/coupon payments) during the tenure of the external debt.
The external debt holders are also protected in the event of termination of concession agreements of any of the underlying SPVs such that the termination proceeds received be used for reduction of external debt in the respective SPV and the remaining proceeds would be used to reduce the external debt across other SPVs under the InvIT on a pro-rata basis.

Further RInfra shall give an undertaking to support any cost overrun on the planned capex in SU Toll Road.
"The aforesaid strengths are partially offset by the high geographical concentration of assets under RInfra InvIT with 70 per cent of the revenues being generated from Tamil Nadu based road projects," ICRA observed.
However, the rating is supported by InvIT's strong debt coverage indicators providing ample cushion for external debt servicing in the event of wide fluctuations in toll collections along with the presence of DSRA, it said.
"The InvIT nevertheless remains exposed to the risks inherent to BOT road projects including that arising from political acceptability of WPI-linked rate hikes over the concession period," ICRA said.

The rating agency further said the acquisition of an asset with a weaker credit profile could result in overall deterioration of the InvIT's credit profile and hence it will be a key monitorable.