Shapoorji Pallonji Pandoh Takoli Highway Private Limited Revised

March 15, 2018

Summary of rated instruments

Previous Rated Amount Current Rated Amount
Instrument* Rating Action
(Rs. crore) (Rs. crore)
Provisional [ICRA]A- (Stable)
Term Loan 1,450.00 1,391.90
confirmed as final
Non-fund based facility - 130.20 [ICRA]A- (Stable); Assigned
Total 1,450.00 1522.10
*Instrument Details are provided in Annexure-1

Rating action
ICRA has confirmed the provisional rating of [ICRA]A- (pronounced ICRA A minus) assigned to the Rs. 1,391.90 crore
(reduced from Rs.1,450 crore) proposed term loan facility of Shapoorji Pallonji Pandoh Takoli Highway Private Limited
(SPPTHPL). ICRA has also assigned a long-term rating of [ICRA]A- to the non-fund based facility of SPPTHPL. The outlook
for the long-term ratings are Stable.

Rationale
In November 2017, ICRA had assigned Provisional [ICRA]A- (Stable) rating to the proposed term loan facility of SPPTHPL.
The company has now achieved financial closure and shared the final sanction letter of the term loan facility. Since the
documents are in line with the initial rating conditions, the rating for the said term loan facility has now been confirmed
as final. Further, the assigned rating favourably factors in the hybrid-annuity based nature of the project easing the
funding risk of the concessionaire with 40% of the project cost to be funded by the authority during construction period
in the form of grant. The rating also factors in the stable revenue stream post-commissioning with 60% of the remaining
project cost being paid out as annuity (adjusted for inflation) over the term of the concession. The rating takes support
from the strong sponsor profile - Shapoorji Pallonji Infrastructure Capital Company Private Limited (SPICCPL, rated
[ICRA]A(Stable)/[ICRA]A1), a wholly-owned subsidiary of Shapoorji Pallonji and Company Private Limited ([ICRA]AA+
(Stable)/[ICRA]A1+), which has a sizeable track record in the construction and operation of infrastructure projects. The
rating also takes into account the project owner and annuity provider, NHAI ([ICRA]AAA(Stable)), which is a key central
government entity entrusted with the responsibility of development and maintenance of India’s national highway
programme. The rating further draws comfort from the appointment of Afcons Infrastructure Limited (AIL, rated
[ICRA]AA (Stable)/[ICRA]A1+) as the EPC contractor (Engineering, Procurement and Construction) for executing the
project, which has demonstrated track record of executing complex infrastructure projects. The total project of
~Rs.2,935 crore (increased from ~Rs.2,850 crore on account of impact of GST) will be funded in the debt-equity ratio of
4:1 net of NHAI grant which is expected to be around 40% of the project cost. SPPTHPL has so far infused ~Rs.90 crore
equity.

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The rating, however, remains constrained by the execution risks in the project given its initial stage and the complexities
associated with construction work in mountainous terrain, albeit the risk is mitigated to some extent by the considerable
experience of AIL in tunnelling work in the Himalayan mountain range. The project remains exposed to cost and time
over-run, though the company has entered into a fixed-time and fixed-cost EPC agreement with AIL for tunnel, road &
structure works which would provide comfort to some extent. The ability of the company to commission the project in a
timely manner and within the budgeted costs would remain important from a credit perspective. Post-commissioning,
the company would have to ensure healthy lane availability in order to avoid any deductions from the annuity amount.

Outlook: Stable
ICRA believes SPPTHPL will continue to benefit from its strong parentage. The outlook may be revised to 'Positive' if the
project progress is ahead of schedule within the budgeted costs. The outlook may be revised to 'Negative' if there are
any significant deviations from the proposed construction timelines and project cost.

Key rating drivers

Credit Strengths

 Strong profile of the sponsor – SPICCL is the infrastructure holding company of the Shapoorji Pallonji group having
strong presence in roads, port, power and resource segment. It operates its road projects through its subsidiary,
Shapoorji Pallonji Roads Private Limited (SPRPL), which had previously successfully commissioned the Jammu –
Udhampur highway.

 Benefits of executing project under Hybrid-Annuity Model (HAM) – For road projects awarded under HAM, 40% of
the bid project cost will be funded by NHAI grant payments based on milestone completion. This significantly reduces
the funding risks for the projects as compared to Built-Operate-Transfer (BOT) Toll/Annuity projects. During the
operational period, 60% of the bid project cost would be received in the form of semi-annual annuity, along with
interest on outstanding annuities, from NHAI wherein the risk of any disruption in the annuity payments is low given
the strong counter-party. The grant to be received from the authority during the construction period will be adjusted
for inflation thus, mitigating the inflation risk during construction stage. The concessionaire will also be paid the
operation and maintenance (O&M) payments on an inflation-adjusted basis to be paid along with the regular semi-
annual annuities.

 Established track record of AIL in road construction – SPPTHPL would be entering into a fixed-price contract with AIL
for executing the tunnel, roads and structure work. AIL has vast experience in the infrastructure sector including road
projects and has undertaken challenging projects in the Himalayan mountain range such as the Jammu-Udhampur
highway, which was successfully completed, and the Rohtang Pass tunnel in Manali, Himachal Pradesh which is
nearing completion. It is also undertaking tunneling operations for the Udhampur-Baramulla-Srinagar Rail link.

 Undertakings from the sponsor – SPPTHPL is likely to benefit from the strong financial support from its sponsors.
SPICCL and SPRPL will provide time and cost over-run support during the construction period.

Credit Challenges

 Project exposed to execution risk - Due to technical complexities and challenges involved in tunneling operations in
hilly terrains, the project is exposed to time and cost over-run risk. The project is in the early stages of execution with
project construction yet to commence pending receipt of the appointed date from the authority. However, the vast
experience of the EPC contractor provides comfort.

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 Project returns exposed to changes in inflation and interest rate risk – SPPTHPL cash flows are exposed to interest
rate risk considering the floating nature of interest rates for the project loan. Also, the annuity payments from NHAI
during the operational period are to be adjusted for inflation based on annual change in price index from the base
year. Persistent low rate of inflation may result in lower interest payments on annuity.

 Lane availability to be ensured for annuity payments – SPPTHPL’s source of income is the annuity, interest on
outstanding annuities and annual O&M payments from NHAI. Hence ensuring proper maintenance of roads along
with no deduction in annuity receipts will be a key credit sensitivity for SPPTHPL’s going forward.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria:

Corporate Credit Rating Methodology

Impact of Parent or Group Support on an Issuer’s Credit Rating

About the company

Shapoorji Pallonji Pandoh Takoli Highway Private Limited (SPPTHPL) is a Special Purpose Vehicle (SPV) promoted by
Shapoorji Pallonji Roads Private Limited – a wholly-owned subsidiary of Shapoorji Pallonji Infrastructure Capital Company
Private Limited (SPICCPL) for undertaking the four-laning of a ~19 km road stretch from end of Pandoh bypass to Takoli in
the State of Himachal Pradesh. The project scope includes constructing ten new two-lane tunnels and rehabilitation of
one existing tunnel for a total length of ~9.8 km, three tunnel connectors and one elevated viaduct structure. The project
has been awarded under the National Highway Development Project - IV B (NHDP-IV B) on Hybrid Annuity mode (HAM).
The bid project cost is Rs. 2,604 crore with construction period of 42 months and operation period of 15 years after
achieving commercial operation date. The annuity and interest on outstanding annuities will be received on a semi-
annual basis along with the O&M receipts, with first year O&M receipt of Rs.33.06 crore to be adjusted for inflation from
bid date.

Key Financial Indicators

Key financial indicators are not applicable as SPPTHPL is a project stage company.

Status of non-cooperation with previous CRA: Not applicable

Any other information: None

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Rating history for last three years:

Current Rating (FY2018)

Date & Rating

Amount Amount
Rated Outstanding
Instrument Type (Rs. crore) (Rs. crore) March 2018 November 2017
1 Term Loan Long Term 1,391.90 - [ICRA]A- (Stable) Provisional [ICRA]A- (Stable)

2 Non-fund based Long Term 130.20 - [ICRA]A- (Stable) -

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Date of Amount
Instrument Issuance / Maturity Rated Current Rating and
ISIN No Name Sanction Coupon Rate Date (Rs. crore) Outlook
NA Term Loan Dec-17 - FY2036 1,391.90 [ICRA]A- (Stable)
NA Non-fund based - - - 130.20 [ICRA]A- (Stable)
Source: Company

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Corrigendum
Document dated March 15, 2018 has been corrected with revision as stated below:

 Revision on page number 3, under link to applicable criteria. The link for ‘Corporate Credit Rating Methodology’ has
been updated to enable reference to the latest version of the rating methodology.

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ANALYST CONTACTS
Anjan Deb Ghosh Shubham Jain
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aghosh@icraindia.com shubhamj@icraindia.com

Rajeshwar Burla Mitul Gandhi

+91 40 4067 6527 +91 22 6169 3345
rajeshwar.burla@icraindia.com mitul.gandhi@icraindia.com

RELATIONSHIP CONTACT
L Shivakumar
+91 22 6114 3406
shivakumar@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
naznin.prodhani@icraindia.com

Helpline for business queries:

+91-124-2866928 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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