Fitch Ratings has today affirmed Mhaiskar Infrastructure Private Limited's (MIPL) outstanding long-term bank loans aggregating approximately INR10.62bn at 'A+(ind)'. The agency has also affirmed the outstanding non-fund based exposure aggregating INR100m, serving as performance security, executed in the form of a bank guarantee from Canara Bank, at 'A+(ind)'. The Outlook is Stable.
The rating actions reflect MIPL's continued strong financial performance, given toll revenues from a mature traffic base that uses both roads on the Mumbai-Pune Expressway and Mumbai-Pune section of the National Highway-4, which allows the project to exhibit strong debt service coverage metrics. FY09 traffic numbers and revenue are broadly in line with forecasts, benefiting from demonstrated demand for this facility and the strong economic drivers of the two premier Indian cities, Mumbai and Pune, served by this corridor. The company successfully implemented a scheduled toll rate increase in April 2008 without an apparent negative impact on gross toll collections.
The ratings also incorporate the financial risk arising from a sharp rise in interest costs; following the provision in the loan agreement, the lenders have reset the interest rate to 12.5% effective January 2009, applicable for the next two years. While this does strain cash flows and negatively impact debt service coverage, there is adequate cushion to absorb the additional burden. Fitch has also tested the financial model for further spikes in interest rates and believes the results offer reasonable comfort.
While the economic slowdown does not seem to have had any significant impact on traffic flows, the project's continued ability to sustain usage levels in the medium term in a harsh macroeconomic environment will be critical particularly given the back-ended nature of the debt amortisation schedule. While reliance on a sum sufficient rate covenant, and the absence of an equity lock-up provision are inherent weaknesses in the loan structure, strong coverage flowing from robust operating cash flows provide good protection to lenders. Furthermore, a debt service reserve of INR305m, supplemented by cash balances of INR729.5m at FYE09, provides some insulation against cash flow volatility.
Fitch will monitor three key variables which can affect credit quality, namely traffic patronage and its composition in the backdrop of a slowing economy, the project's ability to contain maintenance expenses within budgeted amounts and financing costs.
MIPL is a special purpose vehicle owned by two companies belonging to the Mhaiskar family controlled IRB Group. It has a 15-year concession (toll collection ends on 10 August 2019) from the state government-owned Maharashtra State Road Development Corporation Ltd. As at 31 March 2009, MIPL reported toll revenue of INR2,882.6m and generated after tax cash of INR2,319.5m that was available for meeting debt service.
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