ICRA assigns rating to the largest road InvIT in India

10 May 2022 , 01:32 PM

Rating agency ICRA has assigned Provisional [ICRA]AAA rating with stable outlook for the proposed borrowing programme of Cube Highways Trust (CHT, the Trust or the InvIT).

CHT is an irrevocable Trust set up under the Indian Trusts Act, 1882 and registered with the Securities and Exchange Board of India (SEBI) as an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, as amended. The sponsors of the Trust are Cube Highways Infrastructure Pte Limited, and Cube Highways Infrastructure III Pte Limited, which are part of Singapore-based Cube Highways group created as an infrastructure management company/fund with a special focus on road and highway projects in India and having shareholders like I Squared Capital (ISQ), Abu Dhabi Investment Authority (ADIA), International Finance Corporation (IFC) and Japanese Highways International (JHI). The Investment Manager (IM) of the trust is Cube Highways Fund Advisors Private Limited (CHFAPL), the Project Manager (PM) is Cube Highways and Transportation Assets Advisors Private Limited (CHATAAPL). The Trust received registration from SEBI on April 05, 2022.

Cube InvIT is proposing to acquire 19 (consisting of 18 toll road assets and one annuity road asset) assets from the sponsor Group under first tranche. The InvIT will also have the right of first offer for another six assets (ROFO assets). These road assets are operated and maintained pursuant to concessions granted by the NHAI/state government authority and are owned and operated by the respective project SPVs. In the ROFO assets, six NHAI HAM assets are proposed to be transferred to the Trust. The Trust’s debt-raising plans over the near-term include Rs. 12,075 crore for its tranche 1 assets and up to Rs. 2,825 crore of debt for the ROFO assets — primarily to prepay the debt at the SPVs.

Commenting on the rating, Mr. Rajeshwar Burla, Group Head at ICRA said: “The rating derives comfort from the benefits of cash flow pooling for the SPVs and the Trust, which ensures that the pooled cash flows are available for meeting the regular and periodic maintenance expenses and debt servicing of the InvIT. The rating positively factors in the diversified profile of the operational road projects of the InvIT with an average track record of over five years for the toll road assets under tranche 1 and 12 years for the annuity asset. The toll road assets have demonstrated robust recovery in toll collections, post the pandemic-related disruption.”

Providing more insights on the rating factors, Mr. Burla said: “The rating of Cube Highways Trust also considers the InvIT’s robust financial risk profile with a projected average DSCR of ~2.5 times as per ICRA’s base case for tranche 1. Further, the average DSCR for the ICRA’s consolidated base case of tranche 1 and 2 is also robust at ~2.4 times, despite the fact that the tranche 2 assets are dominated by NHAI – HAM road projects. The rating takes comfort from the strong track record of Cube Highways Group in managing and operating road assets in addition to the structural features, including maintenance of a three-month debt service reserve throughout the loan tenure and provision for cash trap in case the DSCR falls below 1.25 times, as per quarterly testing at the consolidated level.”

India has seen multiple issuances under the InvIT structure with Government entities like PowerGrid and the National Highways Authority of India (NHAI) also floating InvITs. In the recent time, ICRA has rated other InvITs in the road sector which includes IndInfravit Trust {rated [ICRA]AAA(Stable)}, Oriental InfraTrust {rated [ICRA]AAA(Stable)}, and SHREM InvIT {rated [ICRA]AAA(Stable)}.