Fitch Ennore Tank Terminal's loans rated at 'Fitch BBB+(ind)'
Fitch Ratings has assigned India-based Ennore Tank Terminal's senior bank loans of INR2,850m a National Long-Term rating of 'Fitch BBB+(ind)'. The Outlook is Stable, Reuters reports.
ETTPL was set up to construct, operate, and maintain a marine liquid terminal at Ennore port consisting of jetty, trestle, pipelines, tank farm and related utilities, under a 30-year license agreement from Ennore Port Ltd on a build, operate and transfer model. The project is sponsored by IMC group (around 88%) and L&T Infrastructure Development Projects Ltd (around 12%). The project cost of INR4,190m was met by a senior debt of INR2,850m, equity of INR990m and the balance through customer advances.
The rating benefits from a reasonably high degree of revenue visibility for the project given the geographical location advantages, the high demand for petroleum, oil and lubricant (POL) products in the port's hinterland, and the contracts concluded with financially strong counterparties for various facilities offered by the terminal.
A 24-year contract with Indian Oil Petronas Ltd. (IOPL), a group company of Indian Oil Corporation Ltd. (IOCL, 'Fitch AAA(ind)'/Stable), for transporting LPG from the jetty to the IOCL terminal located within a 5km distance from Ennore Port is expected to account for a significant portion of revenue. Revenue from storage, handling and delivery services from tankage facilities should contribute to around 40% of revenue. However, the company's ability to conclude satisfactory off-take arrangements for a capacity of around 130,000kl will be key in realising expected levels of cash flows.
Although most contracts are for durations of less than five years, Fitch does not expect ETTPL to find much difficulty in managing recontracting risks as also in ramping up utilisation. The expectation is driven by India's dependence on huge POL imports and the presence of several user industries in the hinterland (including oil marketing companies, petrochemical and tyre industries).
The balance revenue (around 60%) is from jetty-related income (wharfage, berth hire, trestle and pipeline charges, including the aforesaid contracted revenue from IOPL for transporting LPG). Counterparty risks are somewhat mitigated with the jetty-related income being covered under favourable payment terms where bulk of this income is received in advance of arrival of vessels.
Fitch notes that ETTPL faces limited competitive pressures as the off-takers located in the region would face significant transportation costs if they use other ports in the region. Limited competition risks are attributed to safety measures and a consequent regulatory directive to move import of classified POL products out of the thickly populated areas surrounding the Chennai port. However the duration for which exclusivity is available under the license agreement is lower than the debt tenor. Also, should an adjacent private port obtain necessary regulatory approvals to import liquids and offer tankage facilities, the project could face material competition over the medium term.
The rating also reflects IMC's strong operational track record in handling third-party marine liquid terminals and tankage facilities at India's major and minor seaports. The sponsor also carries out operation and maintenance under a fixed-price contract which is renewed every five years.
The back-ended amortisation of the bank debt - with nearly 50% of principal repayment scheduled for the last three years - increases financial risks as does the variable nature of the interest rate, currently at 12.25%. Structural comfort is derived from a debt service reserve equivalent to three months' debt service which is fully funded and is available in the form of a fixed deposit with the escrow bank.
A rating upgrade could result from positive revenue ramp-up experience as per the management case, resulting in the project being able to maintain debt service coverage ratio (DSCR) above 1.2x on a sustained basis. Conversely, the project's inability to achieve the planned levels of utilisation that could result in coverage dropping below 1.10x could trigger a rating downgrade.
