Rating Agencies says L&T Hyderabad Metro project prone to Risks

India-Ratings L&T Hyderabad MetroHyderabad: Larsen & Toubro’s delayed Rs 16,000 crore metro rail project in Hyderabad is prone to significant risk in terms of the time it will take to complete as well as revenues it will earn thereafter, rating agencies have said.

The project has suffered substantial delays owing to various constraints including Telangana government’s advocated route chang es. Underscoring the apprehensions repeatedly expressed by L&T Metro Rail on the project’s economic viability, India Ratings said said it was sceptical about the actual usage of the metro rail in terms of ridership.

India Ratings, which recently assigned AA (SO) rating for Rs 1,000 crore of debt instruments that indicate high degree of safety on timely servicing of financial obligation thanks to unconditional and irrevocable undertaking from L&T, has highlighted many risks.

It said the project’s physical progress was only 49.6% at the end of June 2015 compared to the planned progress of 73.5%.

ICRA, another rating agency that assigned AA rating for Rs 1,250 crore of non-fund facilities, said, “With the project execution delayed due to alignment disputes with government of Telangana, the project COD (commercial operation date) is expected to be delayed by six to 12 months from the targeted date of June 2017.”

It further said, “Speedy execution without any further delays cost overruns as well as targeted ramp up of fare and non-fare revenues post COD would be critical for the credit profile of the SPV and IDPL (L&T Infrastructure Development Projects Limited).”

India Ratings said “despite a detailed analysis of various factors likely to impinge on patronage, cash flows remain vulnerable to forecasting limitations”. It said, “Although the project has a strong economic rationale, the actual usage of the metro rail in terms of ridership and growth will become clear only after the project becomes operational.”

A senior L&T Metro Rail finance official, who did not wish to be named, said highlighting the risks associated with the project was routine for the rating agencies.”We could secure better rating for the bonds since they were guaranteed by our promoters.

A senior official from Hyderabad Metro Rail Corporation, who did not wish to be named, said that in case of Bangalore Metro, none of its Metro Rail routes touches the IT Corridors of Bangalore.  Bangalore enjoys strong global IT power with majority of the residents employed in IT Sectors as well, whereas none of the IT Corridors have Metro Rail.  In case of Hyderabad, it is different, as majority of the routes on the Nagole-Hitec City, LB Nagar-Miyapur etc covers the most commercially viable routes where the traffic is more covering all the Eduacational, Banking, Government, IT and Manufacturing hubs.

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