Rationale

 The rating assigned for Chatra Expressways Private Limited (CEPL) favourably factors in the adequate sponsor profile of Tracks and Towers Infratech Private Limited (TTIPL, rated [ICRA] A(Stable)/ [ICRA] A1), which is undertaking the engineering, procurement and construction (EPC) for the project. CEPL is promoted by TTIPL and Rail Vikas Nigam Limited (RVNL) in the ratio of 51:49 to undertake the hybrid annuity mode (HAM) project. TTIPL has provided a corporate guarantee for availing the loan from the lender till receipt of the first annuity. Further, TTIPL has provided an undertaking towards financial support in case of cost overrun during the construction phase, any shortfall in operations and maintenance (O&M) expenses and debt servicing in the operational phase as per the lender’s approved base case business plan. The rating takes into account the inherent benefits of the hybrid-annuity based nature of the project including upfront availability of right of way (RoW), automatic de-scoping of RoW pending beyond 180 days from the appointed date, inflationlinked revisions to the bid project cost (BPC) during the construction period. The rating notes the relatively lower equity mobilisation risk with 40% of the BPC to be funded by the authority during the construction period in the form of a grant. The rating factors in the stable revenue stream after commissioning with 60% of the inflation-adjusted BPC being paid out as annuity, along with interest at average of one-year MCLR of top five scheduled commercial banks plus 125 bps and O&M payments (adjusted for inflation) over the term of the concession from the project owner and annuity provider, National Highway Authority of India (NHAI, rated [ICRA]AAA(Stable)), which is a key Central Government entity responsible for development and maintenance of India’s national highway programme. The rating, however, remains constrained by the execution risks as the project is yet to receive appointed date due to pending RoW. The same is likely to be received by July 2024. As per the Concession Agreement (CA), if the appointed date is not received before the first anniversary of the CA signing date (June 28, 2023), the agreement is deemed to be terminated unless it is mutually agreed by both parties. CEPL and the NHAI are willing to continue the project mitigating the risk of deemed termination. Further, the execution risk is mitigated by the fixed-price, fixed-time contract and adequate project execution capabilities of TTIPL. The company’s ability to commission the project in a timely manner and within the budgeted costs would remain important from the credit perspective. Post-commissioning, it would have to ensure healthy lane availability to avoid any deductions from the annuity amount. Any significant deductions from annuities or increase in routine and major maintenance (MM) from the budgeted level could impact its debt servicing coverage ratio. Timely support from promoters to fund any shortfalls due to delays in grant or any cost overruns during the construction phase will remain crucial. Further, CEPL’s cash flows are exposed to inflation risk as O&M receipts, though linked to inflation index (70% WPI and 30% CPI), may not be adequate to compensate for the actual increase in O&M/periodic maintenance expenses. The project stretch is a perpetual pavement and is expected to have high share of commercial traffic. The O&M assumptions considered are lower than ICRA’s benchmark estimates and the ability of the special purpose vehicle (SPV) to undertake the O&M within the budgeted costs remains a key rating monitorable.