Rationale

 The assigned rating of [ICRA]A- (Stable) to the term loan of VITP Private Limited (VITP) factors in its strong promoter profile with track record of developing and managing commercial real estate and data centre (DC) projects. VITP is a wholly-owned step-down subsidiary of the Singapore-based CapitaLand India Trust (CLINT). CLINT is held by the CapitaLand Group (24.3% as on March 31, 2024), a Temasek Holdings (Private) Limited1 entity, which has global experience in managing DCs with 26 facilities (operational and under-construction) in 10 cities across the world with a total installed capacity of ~500 MW. In addition, CLINT owns high quality commercial office space in India with leasable area of ~21 million square feet (msf) spread across Bangalore, Chennai, Hyderabad, Mumbai and Pune at a healthy consolidated occupancy of 91% as on March 31, 2024. CLINT also has significant development pipeline of DCs with estimated capacity of ~115 MW across four cities in India (in different special purpose vehicles), which will become operational in multiple phases over the medium term. At present, VITP is developing a DC in International Tech Park Hyderabad (ITPH) with a capacity of 25 MW at a total project cost of ~Rs. 1,943 crore2 in a phased manner, which is estimated to be funded by a debt-to-equity ratio of 67:33. Around Rs. 300 crore of equity has been infused and the balance equity is expected to be infused as per the construction progress through surplus cash flows from the operational office assets under VITP. Further, the debt required for the DC project has been tiedup. The DC project is likely to start operations from FY2027 in a phased manner. The rating considers the strong long-term demand prospects for DCs, backed by digital data explosion in India and favourable regulatory support. These strengths are, however, partially offset by exposure to execution risk as it is currently in the nascent stages of construction. The DC project remains exposed to market risks, given that there are no pre-leasing tie-ups as on date. Further, the estimated capital cost per MW is relatively high compared to the benchmark cost due to higher core and shell costs (increase in excavation cost with presence of rocky terrain, greater floor loading capacity and higher floor-to-ceiling height). Consequently, the break-even occupancy remains high for the DC project. Any delay in tying-up of leases at adequate rates would adversely impact the ability to refinance the construction debt in a timely manner and would remain the key monitorable. However, comfort can be drawn from experience of the CapitaLand Group in dealing with hyperscalers and tenants with large DC space requirements globally. The company also faces stiff competition from large DC additions from established players. The competition is likely to further intensify with the entry of new players in the segment.

The rating reaffirmation of [ICRA]BBB (Stable) for NCDs of Rs. 330 crore factors in the improvement in occupancy to 97.6% as of March 2024 (compared to 82% of August 2023), diversified and strong tenant profile, along with the favourable location of office assets having a total leasable area of 4.15 msf in Hyderabad and Pune. Backed by healthy occupancy and minimal debt obligations, the company’s debt protection metrics are expected to remain comfortable. VITP plans redevelop the Orion building in ITPH from the existing leasable area of 0.2 msf to ~0.9 msf at an estimated cost of Rs. 400-450 crore in the medium term, which will be funded through internal accruals. The rating, however, remains constrained by the exposure to refinancing risk associated with the bullet repayment for the NCDs. Nonetheless, this risk is partly mitigated by the long tenure of the NCDs (maturing in FY2031). The interest on the rated NCDs for the period FY2024 to FY2026 is payable in September 2027 and payable annually on March 31 of every financial year from FY2027 onwards, subject to surplus cash flow availability with the company. The Stable outlook on the long-term rating reflects ICRA’s expectation that the company will be able to achieve adequate leasing progress in DC project before the bullet repayment, benefitting from the healthy demand prospects for the sector and strong sponsor profile, which is expected to provide operational and financial support.