OREANDA-NEWS. Fitch Ratings has affirmed the rating on ITNL Offshore Pte. Ltd's (IOPL) 5.75% CNY630m bond at 'BBB-'.

KEY RATING DRIVERS

Guarantee by EXIM: The affirmation is based on the continued, unconditional and irrevocable guarantee of up to USD114m provided by Export-Import Bank of India (EXIM; BBB-/Stable). The rating is also supported by a principal account of USD4m and a debt service reserve account (DSRA) amounting to one semi-annual coupon payment of around USD2.4m. As at 5 March 2015, IOPL's remaining obligation till maturity of the notes on April 26, 2015 is USD102.4m (USD100m principal and USD2.4m coupon); this amount is more than adequately provided for by the guarantee from EXIM and the amounts in the principal account and the DSRA.

Foreign Exchange Risk Mitigated: The CNY630m 5.75% bond is swapped into an USD100m 4.8% loan with Deutsche Bank AG (A+/Negative) - which has addressed the foreign exchange risk between the bond and guarantee. If the swap continues till maturity, there will be no exchange rate risk. However, if the swap is terminated before maturity, IOPL has to pay the swap holder a termination value based on adverse movement in exchange rates (depreciation in the yuan) and interest (increase in the base rates).

Fitch expects that this risk - even under the most severe adverse currency or interest rate movements - is adequately covered by the guarantee and the principal account. This risk is especially lower given that maturity of the bond is less than two months away.

Guarantee to Bondholders and Swap Providers: The guarantee, provided by EXIM, is available to both the bond investor and the swap provider on a pari passu basis. The claims of the bondholders will have preference over the DSRA, while the principal account will be available on a pari passu basis to both the bond investor and the swap provider. The agency notes that the guarantee and the principal amount will be more than sufficient to meet bond and swap providers' obligations under a variety of stress scenarios.

Bond Redemption: IOPL's bond is likely to be refinanced through another loan raised at an associate company. The management is finalising a loan to refinance the notes and expects the money to be raised by early April 2015.

Bond Proceeds Part Fund Acquisition: IOPL extended a USD89m loan (net of expenses and balances in the principal and interest accounts) to its associate company ITNL International Pte Ltd (IIPL). The money was used by IIPL to repay part of the debt taken to purchase a 49% stake in Chongqing Yuhe Expressway Ltd (Yuhe). IIPL's key income comes from dividend income and service fees from Yuhe.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include
-An upgrade of EXIM's rating

Negative: Future developments that may, individually or collectively, lead to negative rating action include
-A downgrade of EXIM's rating

For EXIM's rating, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 13 May 2014. The main factors that individually, or collectively, could affect EXIM's rating include:

- As EXIM's Issuer Default Rating is equalised with that of the Indian sovereign (BBB-/Stable), any change in the rating of the latter would lead to a corresponding change in EXIM's rating.
- Any dilution in EXIM's focus on its policy roles, such that Fitch considers its business model to be no longer driven by its policy roles, could see the government's propensity to support the institution weaken and the ratings being impacted accordingly. EXIM's linkage with the sovereign is expected to remain strong because it is governed by the Export-Import Bank of India Act, 1981.