Logistics

India Ratings revises outlook on L&T Metro Rail (Hyderabad) bank facilities to negative, affirms ‘IND BBB+’

V Rishi Kumar Hyderabad | Updated on May 25, 2020 Published on May 25, 2020

L&T Metro Rail (Hyderabad) Limited (L&TMRHL) bank facilities down to negative from stable. - KVS Giri

Indian Ratings and Research (Ind-Ra) has revised the outlook on L&T Metro Rail (Hyderabad) Limited (L&TMRHL) bank facilities to negative from stable while affirming a rating of ‘IND BBB+’

The outlook revision reflects the material delays in revenue realisation from monetisation of the transit-oriented development (TOD), shutdown of services during the Covid-19-led lockdown and its impact on ridership in FY21.

L&T (as the sponsor) has extended its support to the project, and in FY20, it increased the support during the operations phase to ₹1,218 crore from the earlier level of ₹503 crore due to the additional debt tied up to finance the cost overrun in the project and to meet the shortfall in debt servicing.

However, the Covid-19 pandemic-related issues and any delays in real estate monetisation would exert additional pressure on cash flows, which could lead to increased reliance on the sponsors. Ind-Ra expects the project to be supported on a timely basis by the sponsor.

For the Metro, ridership projections and revenue risks remain. With the commencement of the 1.34-km Hitec city-Raidurg stretch in November 2019, the per day ridership had crossed 0.3 million. The surge in ridership owing to the newly-commissioned 9.66-km JBS Parade Ground-MG Bus Station (JBS-MGBS) stretch could not be determined as the project operations came to a standstill in March 2020 due to the lockdown following the Covid-19 outbreak.

Although the project’s long-term strong economic rationale remains intact, the impact of short-term challenges cannot be ruled out.

The monetisation of the 1.28 million square feet TOD, which was earlier envisaged to take place in FY20, has been delayed. According to the management, the transaction, which had been in advanced stages of closure, was delayed by the Covid-19 outbreak. The management now expects to conclude the transaction by December 2020.

The commissioning of the JBS-MGBS stretch in February 2020 marked the completion of the project. As on May 14, 2020, LTMRHL had received ₹1,204 crore of the total eligible grant ₹1,458 crore. The balance grant of ₹254 crore has been infused by the sponsor to ensure completion of the project without any hindrance.

The lenders had extended the timeline for the project. And it has been successfully commissioned, with minor slippages.

Cost overruns

The revised project cost is estimated at ₹18,975 crore, up from the earlier estimate of ₹16,370 crore. To bridge the cost overrun and to comply with the support obligation, L&T injected additional equity of around ₹819 crore in FY20 to comply with the cost overrun support obligation. The project also availed additional debt of ₹1,781 crore.

At end-March 2020, the actual cost stood at ₹19,164 crore, with the remaining portion being funded through internal accruals. The construction of stage 6/2 (MGBS to Falaknuma) has been put on hold due to land acquisition issues.

Non-realisation of TOD monetisation revenue by December 2020, fare box revenues significantly lower than base case estimates, absent sponsor support to meet debt service, and further increase in debt quantum, could, individually or collectively, lead to a negative rating action.

L&T is executing the 71.16-km-long metro project and has commissioned 69.2 km as of February 2020.

Published on May 25, 2020
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