The agency has assigned IOT Utkal Energy Services INR30bn non-convertible debenture (NCD) programme an 'IND AAA(SO)' rating, backed by the contractual monthly payments coming from Indian Oil Corporation ('IND AAA'/Stable) under a 'take or pay' contract.
Ind-Ra believes that this transaction portends well for the growth of long-term debt market in India and also allows the issuer to benefit from a well-matched funding profile, especially important in the infrastructure sector. Such transactions usually result in one or more of the following benefits - monetisation of highly certain but contingent cash flows or illiquid assets, long-term visibility on profitability on account of fixed-rate financing, and bridging asset-liability mismatches.
Whole business or single-line business securitisations of future flows are usually in the nature of structured-corporate financing and involve debt repayment from a segregated source of cash flows. This has a high degree of certainty and arises out of payments from highly rated entities. However, the payments are contingent on the non-termination of agreement between parties, requiring fulfilment of certain operational duties by the counterparty/operator. The agency considers these as 'crown-jewel' monetisation programmes, which allow the debt backed by such cash flows to be rated high based on a low-risk revenue profile. These programmes provide an alternate funding source to issuers by separating low-risk revenue sources and thereby reducing overall borrowing costs.
These transactions given their complexity require a bespoke analysis, cutting across disciplines, and involve one or more of the following characteristics - demand and price risk, 'going-concern' analysis of key entities, robustness of transaction structure, sponsor's commitment to operations, experience of operating entities and certainty of future flow receivables.
Such transactions, common in matured debt markets such as the US and Europe, are gaining traction in the Indian debt market. Over the last few years, Indian debt markets have found an investor appetite for such complex yet highly rated debt programmes. Some of the debt programmes that the agency has rated in this category are as follows:
- ETHL Communications' INR42.3bn put option monetisation rated at 'IND AAA(SO)' in 2010
- Religare Enterprises' INR6.25bn put option monetisation rated at 'IND AAA(SO)' in 2013
- Reliance Infrastructure Limited's INR27.25bn Utility tariff backed debt programme rated at 'IND AA(SO)(exp)' in 2014
- IOTUL's INR30bn whole business securitisation of future flows rated at 'IND AAA(SO)' in 2014
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