1. Credit Rating Assignment
Rating Procedure
on
Toll Road Industry
Submitted by
Dheeraj Singh
Sujit Kumar
Dharmesh Shharma
Bipasha Ray
Kartik Shetty

2. Indian Road Sector - Overview

3. • India’s road network (3.3 Million Kms) is the world’s third
largest.
• Road density - 770 Kms/1,000 sq Kms, against the world average
of 840 Kms/1000 sq Kms.
• Country with diverse topographies and the world’s second
largest population.
• The bid pipeline with projects worth around Rs 90,000 Cr,
comprising approximately 13,000 Kms.

5. Sector Expected to Attract Investment of 6.3 trillion …..
• Investments of 6.3 trillion over the next 5 years (2010-11 to 2014-15)
under various schemes
• Maximum investments from NH – Clarity in policy framework with
changes in MCA, bidding policies.
Source: CRISIL Research

6. Policy Initiatives to Promote PPP…….
• Initiatives to upgrade and strengthen National Highways through
various phases of the NHDP
• NHAI - mandated to implement the National Highways
Development Project (NHDP).
• 100% FDI under the automatic route for road projects
• Viability Grant Funding - Entire VGF to be provided during
construction period, maximum grant of 40% allowed(20%
previously)
• Exit policy –permit complete disinvestment 2 years post
completion of construction after obtaining NOC from lenders

7. CRISIL Rating Approach– Toll road projects

8. Rating factors for toll road projects
Traffic risk
Construction
Toll risk
phase risk
Overall credit
rating
Structure of
Financial project Special
analysis Purpose Vehicle
(SPV)
Legal or
contractual risk /
Concession
agreement

9. Construction phase risk
• Delays in construction phase impact the toll road project’s cashflows
and debt servicing capacity
• Key factors in assessing construction phase risk
– EPC contractor’s equity contribution in the project, past track record
– Clearances required and RoW from authority
– Schedule of construction work and land acquisition process
– Financial covenants for timely construction, including penalty payments by
contractors
• Promoter’s financial strength and ability to provide timely support, in
case of funding shortfall

10. Traffic risk
• Traffic forecast in terms of mix and volume on the toll road is key factor
– Traffic mix based on type of vehicle category
– Origin & destination and connectivity of road to important industrial and
tourist areas
– Purpose and frequency of both passenger and freight traffic flow
• Correlation of traffic volume with the economic and industrial growth in
the vicinity of toll road
• Seasonal variations in traffic flow such as festive period, post-harvest
agricultural operations, etc
• Sensitivity analysis of impact of economic cycles and seasonal
variations on traffic volume forecast
• Competition from parallel roads or other modes of transport on the
same route

11. Toll risk
• Toll road user’s willingness to pay toll is an important factor in
determining toll revenues
• Ability to revise toll rates upwards as per concession agreement
– Acceptability by all users across vehicle categories
– Political influence/ local people tolerance to toll rate revision
• Toll collection efficiency
– Location of toll plaza and traffic diversion from parallel roads
– Minimum toll leakages

12. Structure of project SPV
• Legal and financial structure of the SPV
• SPV promoter’s technical capabilities, past experience and commitment
to the project
• Promoter’s financial strength and ability to raise additional funding
resources for the project, if required
• Forms of credit enhancement/ guarantees extended by the promoters
to the SPV

13. Legal or contractual risk/ Concession agreement
• Length of concession period and possibility of extension
• Concession period termination arrangements and payouts, in case of
event of default by either party
• Conditions for recourse to project lenders in case of specific events,
given that toll roads are on limited recourse basis
• Impact of ancillary land/ property development/ change in scope of work
on the project’s financial performance
• Provision for revision of toll rates –transparency, frequency and
quantum
• Clarity on role and responsibility of the parties
• Protection from construction of alternate roads, if any
• Provision for additional highway, if any

14. Financial analysis
• Assess cash flow adequacy for the project to meet its operation and
maintenance charges and debt servicing obligations
– DSCR key determinant
– Liquidity support/Financial flexibility
• Key financial parameters under consideration
– Toll revenues
– Debt Servicing Coverage Ratio (DSCR)
– Net cash accruals
– Extent of Debt Service Reserve Account for liquidity purpose
– Project gearing
– Traffic growth
– Toll rate revision
– Periodicity and quantum of Major Maintenance Expense
– O&M expense
• Stress testing cash flows for adverse economic developments impacting
traffic flow or possibility of toll rate revision
• Financial flexibility in terms of accessing additional funding sources or
support from government agencies/ promoters

15. Toll Road Industry – Traffic Analysis
Case Study – XYZ Co Ltd.

16. Traffic & toll revenue analysis (1/2)
• Traffic dependent on socio-economic conditions of Andhra Pradesh
– Hyderabad (IT hub and state capital) - major driver of freight and passenger
traffic movement
• Toll road protected from traffic diversion through build up of alternate road
upto August 2014
• Stable toll revenue generation of Rs. 1.1 million to Rs. 1.4 million per day
• Healthy growth in toll revenues of 20% yoy in 2010-11
• Upward toll rate revision of 11% yoy in Sept. 2010 – in line with the
inflationary environment

17. Traffic & toll revenue analysis (2/2)
Traffic volume mix Toll revenues
100% 100%
21% 21%
80% 80%
47% 45%
27% 23%
60% 60%
10% 11%
40% 40% 31%
34%
20% 42% 45%
20% 7%
7%
12% 17%
0% 0%
2009-2010 2010-2011 2009-2010 2010-2011
Cars LCVs 2-Axle Trucks/Buses Multi-Axle Vehicles (> 2 Axle) Cars LCVs 2-Axle Trucks/Buses Multi-Axle Vehicles (> 2 Axle)
Cars are the major traffic driver – single trip passenger traffic to Hyderabad
Multi-axle vehicles (MAV) are the major drivers of toll revenue – single trip vehicular traffic on
account of freight movement between industrial areas and Hyderabad

18. CRISIL Assumptions for Credit Assessment

19. CRISIL Assumptions
• Fixed interest rate of Eg; 9.75 per cent pa
• Cost of MMR incurred and time period of performing such MMR
• First major maintenance expense (MMR) to be incurred in 2013-14 and
2014-15 in the proportion of 25 per cent and 75 per cent respectively; and
thereafter with an interval of six years
• Maintenance of escrow account with following payment waterfall
– Dividend/other cash outflows to promoter/group companies to occur only after
meeting payment for taxes, O&M expenses, MMR expense, payout to investors, etc.
• Maintenance of debt service reserve account (DSRA) equivalent to debt
obligations for one quarter throughout the tenure of bonds

20. Credit Assessment

21. Key credit assessment drivers (1/2)
– Traffic drivers & toll revenues growth
 Impact of Economic Slowdown
 Commercial or passenger traffic a major contributor to toll revenues
 Ability to revise toll rates in line with increase in inflation
 Traffic diversion risk from build up of alternate road/transport network
– Adequate debt protection measures
 Average DSCR of 1.4x over the debt payment tenure; DSCR below 1x in MMR
years
 Healthy cash build up to provide liquidity support
 Cash flows supported by escrow mechanism and DSRA
– Experienced sponsors
 Extensive group experience in infrastructure projects, including toll roads
 Group track record in extending support to projects, in stress periods
 Groups ability to win the bid for projects from NHAI or other State Authority

22. Rating Comparison in Toll Road Industry

23. Name of Entity Rating Gearing Net Margins ROCE Int- Total NCA/
Covera Debt/O Total
ge PBDITA Debt
OPBDITA
L&T
AAA 1.34 15.4 8.7 15.2 9.37 3.62 0.15
GVK
AA+ 0.56 26.6 4.7 17.3 2.26 4.43 0.12
NCC
AA- 0.68 10.5 4.9 15.2 2.49 0.16 0.16
Viva
Highways
A+ 1.1 75.8 49.9 22.0 4.39 2.15 0.31
Ramky
A 0.76 10.9 5.7 22.7 4.38 2.25 0.26
Lanco
Infratech
BBB+ 1.11 12.2 4.6 10.6 2.79 4.96 0.09

24. 75.8
80
70
60
50
40
26.6
30
20 15.4
10.5 10.9 12.2
10
0
L&T GVK NCC Viva Ramky Lanco
Highways Infratech
OPBDIT 1.34
1.4
1.2 1.1 1.11
1
0.76
0.8 0.68
0.56
0.6
0.4
0.2
0
L&T GVK NCC Viva Ramky Lanco
Highways Infratech
Gearing

25. 10 9.37
9
8
7
6
5 4.39 4.38
4 2.79
2.26 2.49
3
2
1
0
4.96
5 4.43
Interest Coverage 4.5
4 3.62
3.5
3
2.15 2.25
2.5
2
1.5
1
0.5 0.16
0
L&T GVK NCC Viva Ramky Lanco
Highways Infratech
Total Debt/OPBDIT

26. 0.35 0.31
0.3 0.26
0.25
0.2 0.15 0.16
0.15 0.12
0.09
0.1
0.05
0
L&T GVK NCC Viva Ramky Lanco
Highways Infratech
NCA/Total Debt
25 22.7
22.0
20 17.3
15.2 15.2
15
10.6
10
5
0
L&T GVK NCC Viva Ramky Lanco
Highways Infratech
ROCE

27. Thank You