Credit rating agency Icra downgraded the non-fund based limits worth Rs 50 crore of MEP Infrastructure Developers (MEPIDL) to ‘A4+’ from ‘A3’.  The rating agency also downgraded non-fund based limits of company’s two special purpose vehicles (SPVs) to the tune of over Rs 660 crore to ‘BB+’ from ‘BBB-’.

MEPL’s rating was downgraded as the rating agency noted that it factors in the slower-than-anticipated progress in the six under-construction hybrid annuity mode (HAM) road portfolio with current progress lagging behind schedule.

“Given that MEPIDL is the engineering, procurement and construction (EPC) contractor for its HAM road projects, the slow progress in these projects had resulted in significantly lower-than-anticipated gross billing for MEPIDL’s construction business,” the ratings agency observed.

The limited experience of MEPIDL in EPC business exposes the projects to execution-related risks, it added. The firm has also withdrawn its rating on the company after the downgrade.

The two SPVs’ — MEP Sanjose Arawali Kante Road Pvt Ltd and MEP Sanjose Kante Waked Road Pvt Ltd — term loans, non-fund based limits and working capital amounted to Rs 286 crore and Rs 376 crore, respectively.

“The rating is principally based on a corporate guarantee from MEP Infrastructure Developers (MEPIDL/ guarantor) and an undertaking provided by the guarantor that it would ensure that the related debt obligations are serviced on or prior to the due date. The revision in the rating follows the revision in the short-term rating of MEPIDL to ‘A4+’ from ‘A3’,” ICRA said.

The ratings agency also believes as MEPIDL is the EPC contractor for its HAM road projects, the slow project progress had resulted in significantly lower-than-anticipated gross billing for MEPIDL’s construction business. The road developer’s total debt amounted to Rs 2,200 crore as on March 31, 2019, according to data sourced from Bloomberg.