Fitch Ratings-Mumbai/Chennai/Delhi/Singapore-06 April 2009: Fitch has today assigned an 'A-(ind)' (A minus(ind)) rating to A.J. Tolls Private Limited's (AJTPL) INR231.6m bank term loans. The Outlook is Stable.
The company has a four-year concession (ending December 2012) from the state government-owned Maharashtra State Road Development Corporation Ltd. (MSRDC) to collect tolls from four separate entry points to the city of Pune. AJTPL won the tolling rights through a competitive bid by paying MSRDC an upfront fee of INR286.9m, funded initially through an unsecured loan from sponsor company, MEP Toll Road Private Limited (MTRPL). Part of the loan has been refinanced through the above bank loan with the loan agreement stipulating that INR77.3m of the unsecured loan will not be repaid till the bank loan is fully redeemed.
The rating reflects the revenue potential from operating toll facilities, linked to the economically important city of Pune. Two of the toll plazas are on the state highway leading to NH9 that connects Maharashtra, Karnataka and Andhra Pradesh, while the other two capture traffic linking the dense cluster of IT and manufacturing companies situated along the corridor to Pune. While the company has commenced tolling at two toll plazas, the tolling at the remaining two stations will commence only from May 2009 and July 2009 as per contractual terms.
Although the absence of construction risk is a rating positive, Fitch notes that residual regulatory or legal risk affecting the scheduled launch of tolling at two stations constrain AJTPL's credit profile. Operations and Maintenance (O&M) is the company's responsibility, and the agency does not view this as having a major influence on credit quality given the short concession period and the low probability that O&M expenses will considerably overshoot budget.
Aggressive amortisation of the loan with a fixed schedule of monthly repayment makes debt service vulnerable to cash flow volatility. The complete absence of a tail in the concession does not allow for loan restructuring, if required. That said a fully funded INR22m Debt Service Reserve Account (DSRA), forming over 9% of total debt together with the existing cash balance - though not earmarked specifically for the benefit of lenders - of approximately INR18.5m, provides a measure of internal liquidity. Two features of the loan agreement - a weekly sweep of toll collections into an escrow account dedicated for meeting debt service and restriction on dividend payments - offer additional comfort.
Fitch has also factored in the sponsor group's track record of successfully executing toll road concessions. MTRPL owns 32% of AJTPL and is a company belonging to the promoter group of IRB Infrastructure Developers Ltd., which in turn, through a series of special purpose vehicles, owns and operates concessions over a number of toll roads in western India.
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