Press Release

Press Release

December 24, 2024

MSRDC TUNNELS LIMITED
Rating Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	4500.00	ACUITE A+ \| Reaffirmed \| Rating Watch with Developing Implications	-
Total Outstanding	4500.00	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

Acuité has reaffirmed its long-term rating of ‘ACUITE A+’ (read as ACUITE A plus) on the Rs. 4500.00 crore bank facilities of MSRDC Tunnels Limited (MTL). The rating is placed under rating watch with developing implications.

Rationale for Rating
Acuite has placed the rating of MTL on Rating watch with developing implication on account of business transfer of Mumbai-Pune Express way (MPEW; MPEW Missing Link Project) to its holding company Maharashtra State Road Development Corporation Limited (MSRDC) for a net consideration of Rs.102 crores vide agreement dated 19-02-2024. The same is considered while preparing financial statements for FY2024 wherein the MSRDC took over the project (all liabilities, intangible assets under development. Sub concession rights etc.) of MTL.

At present, the business transfer is completed, however the final implication of the same cannot be ascertained fully as of now due to the in progress operational and procedural activities around the transaction.

The Rating reaffirmation reflects established track record of operations of MTL’s parent (Maharashtra State Road Development Corporation - MSRDC) in the infrastructural construction segment, strong resource mobilization ability on account of continued support from MSRDC and Government of Maharashtra (GOM). However, these rating strengths are partially offset by project execution and implementation risk as the project is still under implementation (~93 percent complete), thus timely completion of the same will remain as a rating sensitivity.

About the Company

Mumbai Pune Expressway (MPEW) and NH48 are the key roads that connect the two largest metropolitan areas in Maharashtra, namely Mumbai and Pune. There are segments which are common on both roads where the 10-lane traffic (6 lanes of MPEW and 4 lanes of NH 48) converge on to MPEW. Some of lanes on MPEW also have to be close for the risk of landslides during monsoon. This creates a problem of traffic congestion. Hence, a capacity augmentation project is critical. GOM has entrusted the responsibility to MSRDC for implementing project for capacity augmentation of MPEW (MPEW Missing Link Project). MSRDC has promoted MTL in September 2018 at Mumbai for undertaking the said project.

The project cost estimate is around Rs. 6,138 Cr. funded through equity of Rs. 1,838 Cr. and debt of Rs. 4,300 Cr. Although there is revision in commercial operation date from August 2024 to March 2025 there are no expected cost escalations. As on November 30th, 2024, the financial closure for the project is complete. The project scope has been divided into two packages. Package 1 includes construction of two tunnels (two tubes of 4 lane each) from km 1.04 to km 2.79 (1.75 km) and km 3.44 to km 12.36 (8.92 km) and Package 2 includes construction of two viaducts of lengths 790 meters (km 0.25 to km 1.04) and 650 meters (km 2.790 to km 3.440) and upgradation of existing 6 lane to 8 lane from (km 32.60 to km 38.66).

Unsupported Rating

Not Applicable

Analytical Approach

Acuité has considered a standalone approach while assessing the business and financial risk profile of MTL and has factored in financial, operational and managerial support it receives from GoM through MSRDC by virtue of being a step-down subsidiary of the GoM. The rating factors in the 100 percent holding of MSRDC (a GoM entity) in MTL along with the strategically important role played by the entity in implementing a key infrastructure project in the state.

Key Rating Drivers

Strengths

Fully owned and strategically key subsidiary of GOM with a long successful track record of operations
MTL is a subsidiary of MSRDC (100 per cent stake) and a step-down subsidiary of GOM. MSRDC, a corporation established and fully owned by the GOM, is a limited company incorporated in 1996. It is established to oversee large road infrastructure projects across State of Maharashtra. MSRDC has successfully completed key projects such as MPEW, Bandra Worli Sea Link (BWSL) and Satara Kagal Road, amongst others. MSRDC has also been tasked with the execution of the critical Hindu Hridaysamrat Balasaheb Thakare Maharashtra Samruddhi Mahamarg Project, a ~701 km project passing through 10 districts of Maharashtra which is also supported by GoM. The Board of MTL comprises of civil servants appointed by the GOM. CEO of MTL also holds the post of Managing Director for MSRDC. MTL is tasked by MSRDC with execution of the MPEW Missing Link project connecting Mumbai and Pune two largest metropolitan areas in India. The project is designed to reduce traffic congestion in and reduce travel time between two of the largest metropolitan areas in Maharashtra. The strategically important nature to MSRDC and support from GOM enhances the financial flexibility of MTL to fund the project from various financial institutions.

Unconditional & irrevocable guarantee from GoM and access to cash flows from toll collection on MPEW
The project cost estimate is around Rs. 6,138 Cr. to be funded through equity of Rs. 1,838 Cr. and debt of Rs. 4,300 Cr. The financial closure for the project is completed thus mitigating funding risk of the project. MTL has been sanctioned a debt to the tune of Rs. 17,500 Cr. from a single lender REC Ltd. Out of Rs. 17,500 Cr.; Rs. 4300 Cr. will be utilised towards the MPEW missing link project, while balance will be utilised towards land acquisitions of future projects of the company as of now the company has made a disbursal of Rs.14500 Cr. The project has been divided into two packages. Package 1 includes construction of two tunnels (two tubes of 4 lane each) from km 1.04 to km 2.79 (1.75 km) and km 3.44 to km 12.36 (8.92 km) and Package 2 includes construction of two viaducts of lengths 790 meters (km 0.25 to km 1.04) and 650 meters (km 2.790 to km 3.440) and upgradation of existing 6 lane to 8 lane from (km 32.60 to km 38.66). The revised project completion is expected in the month of March 2025. The entire debt portion has been secured by unconditional & irrevocable guarantee from GOM. Further, GoM will make budgetary provisions and allocate funds towards the repayments every year in the state budget.
Acuité drawn comfort basis of the unconditional & irrevocable guarantee from GOM and later the cash inflows from toll collections on MPEW.

Weaknesses

Project implementation and offtake risk
The project cost is around Rs. 6,138 Cr. the same is funded through equity of Rs. 1,838 Cr. and debt of Rs.4,300 Cr. Although, there have been no cost revisions to the project, but COD has been extended from August 2024 to March 2025. REC Ltd has sanctioned Rs. 17,500 Cr. to MTL towards its future projects as well and the same will be drawn as per the requirements. Navayuga Engineering Company Limited and Afcons Infrastructure Limited have been appointed as the EPC contractors for Package 1 and Package 2, respectively. The civil work and construction are in progress and as on November 2024 ~93 percent of contract value is complete. However, the risk is mitigated to a certain extent by support from MSRDC and funding shortfall support from GoM in the construction as well as operational period. From a demand and traffic volume standpoint, MTL is likely to be exposed to minimal traffic volume risk as the project aims at reducing congestions and travel time on MPEW a road connecting the two largest metropolitan areas viz; Mumbai and Pune in Maharashtra. It also forms part of the roads that connect the state capital Mumbai to industrialized area in western Maharashtra such as Kolhapur and Satara. The entire debt repayment will be taken care by GoM until FY2031 reducing the traffic volume risk. The repayment is expected to start after the commencement of operations in FY 2026 in order to align operational cash flows to the debt service commitments.

Linkages to the fiscal position of Maharashtra
Maharashtra is India’s leading industrial state, its gross state domestic product (GSDP) is expected (at current prices) to be Rs. 42.67 Lakh Cr. for FY2023-24(RE) as against Rs 35.27 Lakh Cr. for FY2022-23 (RE). The fiscal deficit of Maharashtra for FY2023- 24 (RE) is increased to 2.80 percent of GSDP against 2.70 percent in FY2022-23. This increase is attributable to shortfall in revenue receipts. Any further adverse changes in the fiscal indicators of GoM factors the prolonged slowdown in industrial activities or socio-economic challenges faced by Maharashtra, can significantly impact MSRDC and in turn MTL, and will be a key monitoring factor.

ESG Factors Relevant for Rating

Environment
GHG emissions, air pollutant emissions, environmental management and energy efficiency are significant environmental issues in the transport industry. Additionally, key material issues such as waste management, water efficiency can influence environmental scores.

Social
Labor management issues, such as employee safety & development and employment quality, are a crucial risk transport industry. Furthermore, key material issues such as community support & development, product quality & safety, human rights and equal opportunity have a significant impact the social scores for this industry.

Governance
For this industry, corporate governance is a crucial risk. Regulatory compliance, critical incident risk management, board oversight and business ethics are key governance issues for this industry. Moreover, corruption and bribery related to land transport & transport via pipelines industry, inadequate antitakeover mechanisms, shareholders’ rights, financial audit & control and board & management compensation have a significant impact on the governance scores.

The Maharashtra State Road Development Corporation (MSRDC) had economic, safety and environmental measures built into the project details while planning the MPEW. However, these measures were project-specific, e.g. the development of food plazas, rest areas and convenience stops along certain points on the expressway; the installation of road safety signs, barriers and warnings; and the plantation of approximately 60,000 trees using drip- irrigation along the highway medians. The MSRDC ensured the transplantation of 500 trees cut down in the RoW.

Rating Sensitivities

Timely completion of project and commencement of commercial operations without significant cost overruns.
Any change in the shareholding or support available from the GoM.

Liquidity Position

Adequate

Acuité does not foresee any positive net cash accruals in the first few years of operations. However, the company's repayments are secured by guarantee from GoM that will help it to cover the maturing debt repayments. Further, from FY2031 MTL is eligible to collect toll collections on the MPEW which can be utilised towards the debt repayments. MTL will also get support from GoM through the concession agreement for the construction as well as operational period. The liquidity of the company is likely to remain adequate over the medium term on account of ability GoM and promoters, i.e. MSRDC to fund the liquidity deficit in the construction period and repayments from GOM in the initial operational period.

Outlook: Not Applicable

Other Factors affecting Rating

None

Key Financials

Particulars	Unit	FY 24 (Actual)	FY 23 (Actual)
Operating Income	Rs. Cr.	0.00	0.00
PAT	Rs. Cr.	0.01	(0.04)
PAT Margin	(%)	0.00	0.00
Total Debt/Tangible Net Worth	Times	0.00	(0.80)
PBDIT/Interest	Times	0.00	0.00

Status of non-cooperation with previous CRA (if applicable)

Not Applicable

Any other information

None

Applicable Criteria

• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm
• Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm
• Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm
• Public Finance - State Government Ratings: https://www.acuite.in/view-rating-criteria-26.htm

Note on complexity levels of the rated instrument

In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.

Rating History

Date	Name of Instruments/Facilities	Term	Amount (Rs. Cr)	Rating/Outlook
26 Sep 2023	Term Loan	Long Term	4500.00	ACUITE A+ \| Stable (Reaffirmed)
28 Jun 2022	Term Loan	Long Term	349.13	ACUITE A+ \| Stable (Reaffirmed)
	Term Loan	Long Term	325.46	ACUITE A+ \| Stable (Reaffirmed)
	Term Loan	Long Term	108.49	ACUITE A+ \| Stable (Reaffirmed)
	Term Loan	Long Term	108.49	ACUITE A+ \| Stable (Reaffirmed)
	Term Loan	Long Term	108.49	ACUITE A+ \| Stable (Reaffirmed)
	Proposed Long Term Loan	Long Term	3499.94	ACUITE A+ \| Stable (Reaffirmed)
24 Mar 2021	Proposed Long Term Loan	Long Term	4500.00	ACUITE A+ \| Stable (Reaffirmed)
18 Jan 2021	Proposed Long Term Loan	Long Term	4400.00	ACUITE A+ \| Stable (Assigned)

Annexure - Details of instruments rated

Lender’s Name	ISIN	Facilities	Date Of Issuance	Coupon Rate	Maturity Date	Quantum (Rs. Cr.)	Complexity Level	Rating
Rural Electrification Corporation Ltd.	Not avl. / Not appl.	Term Loan	Not avl. / Not appl.	Not avl. / Not appl.	31 Mar 2043	4500.00	Simple	ACUITE A+ \| Reaffirmed \| Rating Watch with Developing Implications

*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)

Sr. No.	Company Name
1	Government of Maharashtra
2	Maharashtra State Road Development Corporation
3	MSRDC Tunnels Limited

Contacts

Mohit Jain
Senior Vice President - Rating Operations

Akshat Shah
Associate Analyst - Rating Operations

Contact details exclusively for investors and lenders

Mob: +91 8591310146
Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai.

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