By Devika Malik

India Ratings and Research (Ind-Ra) has affirmed National Highways Authority of India's (NHAI) Long-Term Issuer Rating at 'IND AAA' with a Stable Outlook. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

FY18 borrowing programme (including 54EC bonds for FY18)

-

-

-

INR590

IND AAA/Stable

Assigned

Tax-free bonds (FY12 and FY16) 

 

 

 

INR290

IND AAA/Stable

Affirmed

Long-term bonds (FY14)

-

-

-

INR29.42

WD

Withdrawn

(Paid in full)

Long-term bonds (FY15 and FY16)

-

-

-

INR76.24

IND AAA/Stable

Affirmed

FY17 borrowing programme

-

-

-

INR331.18 (reduced from INR550)

IND AAA/Stable

Affirmed

KEY RATING DRIVERS

Public Policy Institution: NHAI, being the sole agency responsible for the development of national highways in India, is strategically important to the government of India (GoI). NHAI’s fundamental purpose is to improve the national road transit infrastructure, better serve the national economy, and improve the country’s standard of living. Its mandate highlights the GoI’s priority on economic development, while retaining an underlying social welfare function. Its tax exemption status and privilege to raise funds through Section 54EC capital gains bonds and tax-free bonds reiterate its importance to the GoI. 

Robust Sovereign Control:
 NHAI's ratings factor in its significant financial, operational and managerial linkages with the GoI, as well as its statutory status. Strong federal control, with the GoI monitoring its annual budget (including borrowings) and operational performance, supports the ratings. 

Financial Support:
The GoI provides substantial support to NHAI through fuel cess and grants. Fuel cess remains the major source of NHAI’s finances and increased at a CAGR of 20.78% to INR154.29 billion during FY13-FY18 (budget estimates). Also, NHAI is one of the only two institutions allowed by the GoI to raise finances at competitive rates through bond issuances under Section 54EC of the Income Tax Act. These bonds allow investors to secure tax exemption on the capital gains earned on the sale of assets and are open for subscription throughout the year. 

Pick-up in Operational Performance:
 NHAI’s performance with regard to project completion (annual road length completed as a percentage of annual road completion targets) remained robust in FY17 as well. NHAI completed construction of 80.44% of its targeted stretches by end-January in FY17 (FY16: 99.40%), and achieved construction efficiency of 6.57km/day (5.45km/day). Although the pace of highway construction grew 20.7% yoy in FY17, it is still lower than 7.8km/day achieved in FY13. Ind-Ra believes the pace will accelerate in coming years due to (i) the sustained focus of the Ministry of Road Transport and Highways on this sector, (ii) the award of most of new road projects on the engineering, procurement, and construction (EPC)/hybrid annuity mode (HAM), and (iii) the renewed interest shown by the private sector in road projects after the exit route was relaxed under the public-private partnership model. 

NHAI’s efficiency in awarding projects (annual road length awarded as a percentage of the annual roads awarded target) picked up pace during FY14-FY16. During FY16, NHAI had awarded 4,367.64km for construction, which was 84.63% of the FY16 target. However 
in FY17, NHAI could award only 2,914km till end-January 2017 (43.95% of its target) against its plan of awarding 6,631km for construction. Project award performance improved in FY16 and FY17 from the low levels of FY13 and FY14. However, it is lower than the 17.1km/day awarded in FY12. 

Performance of HAM & EPC:
Since the new HAM envisages better sharing of the project risk since the concessionaire does not have to bear the traffic and inflation risks, NHAI has been able to roll out substantial projects under this route in FY16 and FY17. In FY17 till end January, NHAI awarded 50 projects with the total length of 2,914.34km. Of these, 18 projects with a length of 1,176.66km were taken up HMA and 1,315.51km were taken up on EPC. Only four projects have been taken up under build operate transfer (toll) with a length of 422.17km. Ind-Ra believes despite initial hiccups in HAM, more projects will be awarded under HAM and EPC and coming years may see some progress even on the toll operate transfer model. 


RATING SENSITIVITIES

Weakening of NHAI’s financial, operational and managerial linkages with the GoI is a negative rating trigger.


COMPANY PROFILE

NHAI, an autonomous body of the GoI, was constituted by an act of Parliament - NHAI Act, 1988 - to develop, maintain and manage the national highways entrusted to it.


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Outstanding Limits (billion)

Rating

11 April 2016

2 September 2015

31 March 2014

Issuer Rating

Long term

 

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

Tax-free bonds (FY12)

Long term

INR100

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

IND AAA

Long-term bonds (FY14)

Long term

INR29.42

WD

IND AAA/Stable

IND AAA/Stable

IND AAA

Long-term bonds (FY15)

Long term

INR33.43

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

IND AAA

Long-term bonds (FY16)

 

Long term

INR42.81

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

-

Tax-free bonds (FY16)

Long term

INR190

IND AAA/Stable

IND AAA/Stable

IND AAA/Stable

-

FY17 borrowing programme

Long term

INR331.18

IND AAA/Stable

IND AAA/Stable

-

-

FY18 borrowing programme (including 54EC bonds for FY18)

Long term

INR590

IND AAA/Stable

-

-

-

ANNEXURE

Instrument

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (INR billion)

Rating/Outlook

Rating Action

Tax-free bonds (FY12)

25 January  2012

8.20

25 January 2022

67.14

IND AAA/Stable

Affirmed

Tax-free bonds (FY12)

25 January  2012

8.30

25 January 2027

32.89

IND AAA/Stable

Affirmed

Total

 

100.03

 

 

54 EC Bonds (FY15)

April 2014

6.00

March 2017

2.20

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

May 2014

6.00

May 2017

2.29

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

June 2014

6.00

June 2017

1.91

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

July 2014

6.00

July 2017

2.97

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

August 2014

6.00

August 2017

2.19

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

September 2014

6.00

September 2017

2.45

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

October 2014

6.00

October 2017

2.06

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

November 2014

6.00

November 2017

2.48

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

December 2014

6.00

December 2017

2.68

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

January 2015

6.00

January 2018

2.84

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

February 2015

6.00

February 2018

2.89

IND AAA/Stable

Affirmed

54 EC Bonds (FY15)

March 2015

6.00

March 2018

6.48

IND AAA/Stable

Affirmed

Total

 

33.43

 

 

54 EC Bonds (FY16)

April 2015

6.00

April 2018

2.26

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

May 2015

6.00

May 2018

2.69

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

June 2015

6.00

June 2018

2.76

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

July 2015

6.00

July 2018

3.26

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

August 2015

6.00

August 2018

3.27

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

September 2015

6.00

September 2018

3.43

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

October 2015

6.00

October 2018

3.16

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

November 2015

6.00

November 2018

2.64

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

December 2015

6.00

December 2018

3.35

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

January 2016

6.00

January 2019

3.52

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

February 2016

6.00

February 2019

3.84

IND AAA/Stable

Affirmed

54 EC Bonds (FY16)

March 2016

6.00

March 2019

8.63

IND AAA/Stable

Affirmed

Total

 

42.81

 

 

Tax-free bonds (FY16)

18 September 2015

7.11

18 September 2025

5.49

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

18 September 2015

7.28

18 September 2030

33.23

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

11 January 2016

7.14

11 January 2026

6.86

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

11 January 2016

7.39

11 January 2026

6.56

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

11 January 2016

7.35

11 January 2031

59.83

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

11 January 2016

7.60

11 January 2031

26.75

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

18 February 2016

7.02

18 February 2026

4.55

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

11 January 2016

7.39

18 February 2031

13.73

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

9 March 2016

7.04

9 March 2026

0.98

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

9 March 2016

7.29

9 March 2026

1.92

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

9 March 2016

7.39

9 March 2031

18.82

IND AAA/Stable

Affirmed

Tax-free bonds (FY16)

9 March 2016

7.69

9 March 2031

11.28

IND AAA/Stable

Affirmed

Total

190.00

 

 

54 EC Bonds (FY17)

April 2016

6.00

April 2019

2.70

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

May 2016

6.00

May 2019

3.67

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

June 2016

6.00

June 2019

4.41

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

July 2016

6.00

July 2019

5.21

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

August 2016

6.00

August 2019

4.17

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

September 2016

6.00

September 2019

4.55

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

October 2016

6.00

October 2019

4.33

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

November 2016

6.00

November 2019

5.66

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

December 2016

5.25

December 2019

4.55

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

January 2017

5.25

January 2020

3.92

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

February 2017

5.25

February 2020

3.76

IND AAA/Stable

Affirmed

54 EC Bonds (FY17)

March 2017

5.25

March2020

8.80

IND AAA/Stable

Affirmed

Total

55.73

 

 

Taxable bonds (FY17)

3 August 2016

8.03

3 August 2041

50.00

IND AAA/Stable

Affirmed

Taxable bonds (FY17)

1 September 2016

7.68

30 August 2041

50.00

IND AAA/Stable

Affirmed

Taxable bonds (FY17)

23 December 2016

7.17

23 December 2021

50.20

IND AAA/Stable

Affirmed

Taxable bonds (FY17)

24 January 2017

7.22

24 January 2047

85.00

IND AAA/Stable

Affirmed

Taxable bonds (FY17)

20 March 2017

7.60

18 March 2022

40.25

IND AAA/Stable

Affirmed

Total

275.45


COMPLEXITY LEVEL OF INSTRUMENTS

Bonds are instruments with low complexity levels, where the relationship between inherent risk factors and intrinsic return characteristics is straightforward.  

For more information, visit
https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

Headquartered in Mumbai, Ind-Ra has six branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Applicable Criteria

Analyst Names

  • Primary Analyst

    Devika Malik

    Senior Analyst
    India Ratings and Research Pvt Ltd 36 Urban Center, Level 4,Road no.36, Jubilee Hills Hyderabad - 500 033
    +91 40 67661911

    Secondary Analyst

    Dr. Sunil Kumar Sinha

    Principal Economist and Director Public Finance
    +91 11 43567255

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121