Crisil Ratings today assigned India’s first rating for road projects based on the toll-operate-transfer (TOT) model. The rating, ‘Provisional Crisil AA-(SO)/Stable¹’, was assigned to the bank facilities of nine special purpose vehicles (SPVs) sponsored by Macquarie Asia Infrastructure Fund 2 (MAIF 2) under the TOT model.

MAIF 2 won the first bundle of road projects awarded under the TOT mode by emerging the highest bidder offering Rs 9,681.5 crore. This marks the single-largest foreign investment in India’s roads sector.

The TOT model, introduced by the National Highways Authority of India (NHAI; rated ‘Crisil AAA/Stable’), awards packages of already operational road assets to winning bidders who are licensed to collect toll on, and to maintain, the roads over the life of the concession.

The first TOT package comprises nine highway stretches in Andhra Pradesh (AP) and Gujarat, which ensures geographic diversification. Six of these are in AP and are part of the NH5 of the Golden Quadrilateral connecting Kolkata and Chennai, and have a strong traffic potential given the presence of ports, industrial clusters and consumption centres in the periphery. Toll rate escalations have a 3% fixed component and depend 40% on the Wholesale Price Index (WPI).

Says Sachin Gupta, Senior Director, Crisil Ratings, “The rating of nine SPVs reflects healthy financial risk profile with robust blended debt service coverage ratio, supported by robust capital structure.”

Further, the presence of structures such as cross collateralisation and cross default clauses between each of the nine SPVs, allowing for availability of project cash flow post debt servicing in individual SPVs for debt servicing of other SPVs, supports the consolidated debt service coverage ratio.

Says Sushmita Majumdar, Director, Crisil Ratings, “Having a strong and experienced sponsor (MAIF 2), and O&M partner (Ashoka Buildcon Ltd; rated ‘Crisil AA-/Stable/Crisil A1+’) supports the credit profiles of these SPVs.”

The rating reflects healthy debt protection metrics backed by strong traffic potential of the stretches with adequate debt-equity mix, strong and experienced sponsor and O&M partner, and the presence of a co-obligor structure across all the SPVs. These strengths are partially offset by susceptibility of toll revenue to volatile traffic volume and higher-than-expected O&M expenses owing to latent defects. The threat of competing routes also continues, just as in the case of BOT projects.

TOT is the latest mode of project award introduced by the NHAI. And the first TOT rating underscores Crisil’s endeavours towards the development and deepening of India’s credit market.

Annexure 1: List of 9 SPVs