Fitch Ratings has today assigned India's IRB Infrastructure Developers Ltd (IRB) a National Long-term rating of 'A-(ind)' (A minus(ind)) with a Stable Outlook. At the same time, the agency has assigned National Long- and Short-term ratings of 'A-(ind)' (A minus(ind)) and 'F1(ind)' to IRB's INR3bn long- and short-term non-fund based limits, respectively.
The ratings reflect IRB's status as a holding company with investments in road infrastructure projects, its full stake in its Engineering, Procurement and Construction (EPC) arm, a track record of project execution and a portfolio of strong operating assets. These factors are counterbalanced to an extent by the risks associated with projects under implementation. The ratings benefit from IRB's comfortable liquidity position, given its large cash balances of INR3.5bn and liquid investments of INR1.3bn as of December 2008.
IRB's ratings are nonetheless constrained due to high leverage related to the company's two large Build Operate Transfer (BOT) road projects, of which one is currently under construction, and by limited access to cash flows from operational projects. However, Fitch notes that the company's debt will be largely concentrated in its three large toll road projects: Mumbai - Pune toll-road (Mhaiskar Infrastructure Pvt Ltd (MIPL), rated 'A+(ind)'); Surat - Bharuch BOT (IDAA Infrastructure Pvt Ltd (IDAA), rated 'BBB-(ind)'(BBB minus(ind)) and Dahisar - Surat BOT (IRBSD Pvt Ltd ((IRBSD)). The cash flow from IRB's other nine toll roads and its construction arm (Modern Road Makers Pvt Ltd, MRM) will be unencumbered and available to the group.
The company's rating will remain linked to the financial performance of its various subsidiaries, and Fitch expects IRB's credit profile to remain stable as existing projects mature and help mitigate the risks of new BOT projects undertaken by IRB. However, the concession of a very large project/s, which increases risks significantly, would act as a negative rating trigger.
Ideal Road Builders Pvt Ltd, IRB's fully-owned subsidiary, was established in 1977 as a construction company and started developing toll roads in 1995. The IRB holding company was incorporated in 1998 and the IRB group has subsequently expanded to become a large infrastructure player with an expertise in operating toll roads. The company's business segments are toll roads and construction and real estate. IRB currently has 10 operational toll roads, and three toll roads under construction. The various toll roads are structured into separate SPVs. The Mumbai - Pune toll road is operational with stable cash flows, and comfortable credit metrics. However, IRB has access to the Mumbai - Pune cash flows only to the extent of dividends. IDAA is expected to commence levying tolls in August 2009. IRBSD began levying tolls in mid-February 2009 on the existing four-lane highway (which is expected to increase to six-lanes), with the operating cash flow being ploughed back into the construction cost of the project. At end-December 2008, MRM had an order book of INR60bn, with its main project being the construction of the Surat Dahisar road (INR26.9bn).
For 9M09, the company registered revenues of INR6.9bn and EBITDA of INR3.4bn. The largest contribution to EBITDA was from MIPL (INR1.9bn). The company had debt of INR22.6bn, largely with MIPL (INR10.6bn) and IDAA (INR10.2bn).
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(ind)' for National ratings in India. Specific letter grades are not therefore internationally comparable.
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