Rationale

 The rating reaffirmation factors in the timely receipt of eight semi-annuity payments, including operations and maintenance (O&M) payments from the National Highway Authority of India (NHAI; rated [ICRA]AAA (Stable)), without any penalties, availability of a debt service reserve account (DSRA) equivalent to six months of debt obligations and a major maintenance reserve (MMR) for periodic maintenance. The rating considers the healthy debt coverage indicators during the debt tenure. Further, the presence of escrow, cash flow waterfall mechanism and restricted payment clause with a minimum DSCR of 1.2 times, provide credit support. The rating considers the stable annuity revenue stream over the term of the concession from the project owner and annuity provider, NHAI, which is a key Central Government entity. ICRA notes that the interest rate on the rated debt is linked to the repo rate, whereas the annuity income is linked to the base rate, thereby mitigating the interest rate risk to a large extent. The rating takes into account the strong profile of the O&M contractor and sponsor – Ashoka Concessions Limited (ACL, rated [ICRA]A (Stable)). The Ashoka Buildcon Group has a demonstrated track record of executing O&M works within the budgeted time and cost. Further, ACL has provided an undertaking towards financial support in case of any shortfall in O&M expenses, including the first major maintenance (MM), as per the lender’s approved base case business plan. The rating is, however, constrained by the weak debt structure due to the lack of cushion available between the annuity date and repayment dates. The annuity dates fall on March 31 and September 30 each year, which coincide with the debt repayment dates. Historically, two out of eight annuities were received with a lag of 11-12 days, thereby necessitating funding support from the promoter group to tide over the cash flow mismatch in the interim. The company has prepaid one instalment and intends to continue repaying ahead of the existing repayment schedule mitigating the risk to an extent. In addition, it has surplus balances of Rs. 101.8 crore as of May 2024, which can be utilised for debt servicing in case of any delay in future annuities. ICRA notes the single asset nature of the project, which exposes it to revenue concentration risk. Consequently, the debt metrics remain vulnerable to any deductions in annuity and O&M receipts. Further, AKLRL would have to ensure satisfactory upkeep of the carriageway as per the provisions of the concession agreement to avoid any deductions in the annuity amount. The first MM cycle is due in FY2026-27, with an estimated cost of Rs. 120.3 crore as per the lender’s model, which is planned to be funded through project cash flows. The company has MMR of Rs. 62.5 crore as on May 31, 2024, and the balance would be created from the cash flows before MM cycle is due. Any material increase in regular or periodic maintenance expenditure will adversely impact the debt coverage metrics and remain a key credit sensitivity. The Stable outlook on the rating reflects ICRA’s opinion that AKLRL will continue to benefit from its stable revenue stream from the strong counterparty with timely annuity payments, healthy debt coverage metrics and presence of structural features.