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Rating agency ICRA, on Monday, downgraded the long-term borrowings of IL&FS Transportation Networks (ITNL), the road arm of IL&FS, amounting to ₹4,570 crore, placing the ratings under watch with developing implications.
ICRA has downgraded the long-term rating outstanding on the ₹2,000-crore NCD programme and ₹490-crore term loans of ITNL to ICRAA- from ICRAA; the short-term rating outstanding on the ₹320-crore fund-based bank facilities and the ₹1,000-crore commercial paper programme ICRA A2+ from ICRA A1, and the long-term rating outstanding on the ₹760-crore preference share of ITNL to ICRA BBB+ from ICRA A-.
Specific to rated issue
ICRA noted it also has a rating of ICRA AA+(SO) (Stable) outstanding on the ₹1,249.5-crore NCD programme and Provisional ICRA AA+(SO) (Stable) outstanding on the ₹1,250.5-crore NCD programme backed by debt service reserve account (DSRA) support undertaking by the parent company, IL&FS. However, the agency added, an SO rating is specific to the rated issue, its terms, and its structure and does not represent ICRA’s opinion on the general credit quality of the issuers concerned while the provisional rating is subject to the fulfilment and review of all pending actions or documentation pertaining to the instrument rated by ICRA; hence, the final rating may differ from the provisional rating.
High debt obligations
“The downgrades in the rating take into account the weakening of ITNL’s financial risk profile with more-than-anticipated increase in debt levels driven by funding commitments (equity and sub-debt) towards under-construction BOT (build-operate-transfer) projects and additional funding support required for some of the operational BOT projects,” ICRA said in a statement.
Analysts noted that the near-term debt obligations are high, despite efforts being made by the company to elongate its debt maturity profile. They added that the ratings are also constrained by the high refinancing risk, given sizeable near-term debt repayment obligations and exposure to forex risks with respect to unhedged debt contracted in subsidiaries and guaranteed by ITNL, namely Elsamex SA, a Spanish company focusing on operations and maintenance of infrastructure assets, and ITNL’s investment in China — Chongqing YuHe Expressway Company operating a toll road there.
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