Monitoring of debt servicing critical: CRISIL Ratings

CRISIL has noted the recent delay by National Highway Authority of India (NHAI) in making a loan service payment of about Rs185 million, on an unrated obligation to the Asian Development Bank. The delay of eight days was due to an administrative oversight. CRISIL believes that this delay does not reflect financial inability or unwillingness to pay on NHAI's part, and hence does not indicate any change in the inherent credit quality of NHAI (rated AAA/Stable).

NHAI has in fact recently fully prepaid Rs55.93 billion of bonds using its own funds. The entity also has a bank overdraft limit of Rs20 billion, and a Rs.60 billion line of credit, both of which are largely unutilised. Given this access to liquidity, and in the light of CRISIL's detailed discussions with NHAI's management about strengthening NHAI's debt servicing processes, CRISIL believes that the recent instance of delay is a unique one.

Though CRISIL has not initiated any rating action, it nevertheless believes that this systemic lapse brings to the fore the need for entities to develop systems and measures to ensure timely debt servicing of both rated and unrated borrowings. Such measures may include centralised monitoring of payment dates, timely triggers in advance, and more effective co-ordination with lending agencies. Any recurrence of payment delays - even on unrated instruments - or other indications that adequate debt servicing mechanisms have not been operationalised can affect CRISIL's view on the issuer's credit quality.