Skyline Infra Private Limited: [ICRANP] LB+/A4 assigned

June 13, 2022

Summary of rating action
Rated Amount
Instrument* Rating Action
(NPR Million)
Fund based; long-term limits 1,278.9 [ICRANP] LB+; assigned
Non-fund based; short-term limits (within long-term limits) (302.1) [ICRANP] A4; assigned
Total 1,278.9
*Instrument details are provided in Annexure-1.

Rating action
ICRA Nepal has assigned a long-term rating of [ICRANP] LB+ (pronounced ICRA NP L B plus) to the long-term limits and a
short-term rating of [ICRANP] A4 (pronounced ICRA NP A four) to the short-term limits of Skyline Infra Private Limited
(Skyline). The sign of + (plus) or – (minus) appended to the rating symbol indicates their relative position within the
rating category concerned.

Rationale
The ratings assigned to Skyline (a special purpose vehicle that is developing a multipurpose commercial property
including a hotel, retail spaces and movie theatre) remain constrained by the company’s leveraged project capital
structure with the planned 80:20 debt-equity composition. The ratings consider the delays in project completion
beyond the originally planned operation date amid the pandemic (original completion target of December 2020 and
revised completion target of September 2022). The high leverage is expected to stretch the profitability and debt
coverage indicators over the near to medium term until the project achieves stabilisation. ICRA Nepal expects a need
for promoter support for servicing the debt repayment obligations during the initial years. The ratings remain
constrained by the limited experience of the promoters in the hotel business, despite their long track record in other
business ventures. The cyclical nature of the hotel business also exposes the company to the risk arising from the cash
flow mismatch, which may affect its liquidity and debt repayment capacity.

Nonetheless, the ratings derive comfort from the diversified revenue stream including rental spaces, cinema halls and
hotel operations, which is expected to aid the company’s revenue generation, once stabilised. The proposed four-star
hotel will be operated under the brand name of Sarovar Portico – a leading hotel chain in India. Further, the hotel is
likely to benefit from the corporate hubs in Bara-Parsa region and its proximity to the Indian border, which is
anticipated to attract Indian tourists as well. The rating also derives comfort from the lower funding risk with ~90% of
the estimated project equity infused and the entire estimated project debt tied up with the banks as of mid-April 2022.
The rating positively factors the Government of Nepal’s initiative to provide support and boost demand prospects of
the Nepalese tourism industry.

Key rating drivers

Credit strengths
Diversified operational segments and brand recognition for the hotel – The project is likely to benefit from the
diversified operational segments, which will support revenue generation. The first QFX cinema hall in the city and
rentals from the shopping mall (with reputed brands) along with swimming pool, spa, and health clubs are expected to
attract footfalls traction and aid the restaurant revenue. Further, the company has entered into an agreement with
Sarovar Hotel Private Limited for the expertise, skill and technical knowhow for the commencement and operation of
the four-star hotel under the trademark Sarovar Portico.

Low funding risk – The proposed commercial complex is estimated to be developed at a cost of NPR 1,600 million in a
debt to equity ratio of 80:20. The company has tied up the entire project debt requirement with the lender banks and
the promoters have infused ~90% of project equity as of mid-April 2022. However, timely disbursement of project
loans by the lender banks, amid the ongoing credit crunch in the banking industry, could affect the project timeline.

Strategic location – The hotel is expected to benefit from the corporate hubs in Bara-Parsa region and the lack of high-
end hotels in this area. Also, given its proximity to the Nepal-India border (~4 km distance from Raxaul, India), it is likely
to remain a hub for Indian tourists as well.

Credit challenges
Higher leverage; debt service/coverage indicators to remain stretched in initial years – The higher leverage and
moderate revenue expected during the stabilisation phase are likely to exert pressure on the company’s liquidity and
debt servicing capacity. The debt burden is on the higher side given the 80:20 debt-equity mix for the project capex.
Further, delays in project completion and commencement of term loan repayment, prior to the commencement of
revenue generation, add to the cash flow mismatch and liquidity risk. The promoter’s ability to provide funding support
during the initial years to service its financial obligations remains crucial. Nonetheless, the funding risk remains low
with ~90% of the planned equity infused till mid-April 2022.

Project offtake risk – The management estimated commercial operation date for the project is in September 2022.
Thereafter, its ability to secure adequate occupancies in the retail spaces and generate rental cash flows from the same,
coupled with the commencement and stabilisation of hotel property within the complex, are yet to be seen. These
concerns are also exacerbated by the evolving impact of the pandemic and its probable effect on the hospitality and
retail space industry.

Cyclical industry, vulnerable to a general economic slowdown and exogenous factors – Given the reliance on the
discretionary nature of spending, travel and tourism remains highly susceptible to exogenous shocks including
economic meltdowns alongside the pandemics including Covid-19. The negative outlook on the hotel sector amid the
extensive impact of the pandemic is likely to affect the uptake risk. Further, the tourism industry in Nepal remains
seasonal, which could result in volatile cash flows for the company.

Analytical approach: For arriving at the ratings, ICRA Nepal has applied its rating methodologies as indicated below.
Links to applicable criteria:
Corporate Credit Rating Methodology

Company profile
Incorporated in November 2016, Skyline is constructing a mall in Birgunj, Parsa with unique infrastructure including
QFX cinema hall and hotel with 48 rooms and other amenities. The commercial complex is spread over a plot size of
~1537.6 square metre that will house rental shops, restaurant, gaming zone, banquet hall, cinema hall and a proposed
four-star hotel under the trademark of Sarovar Portico. The company is promoted by 10 individuals involved in
different business ventures.
Annexure-1: Instrument details
Rated Amount
Facility Rating Action
(NPR Million)
Long-term limits (A) 1,278.9
Fund-based Limits; Term Loan 375.0 [ICRANP] LB+; assigned
Fund-based Limits; Long-term funded limits (Bridge Gap Loan) 903.9

Short-term Limits (B) (within A) (302.1)

Non-fund Based Limits; Bank Guarantee (10.0) [ICRANP] A4; assigned
Non-fund Based Limits; Letter of Credit (292.1)
Total 1,278.9

Analyst contacts
Mr. Sailesh Subedi (Tel No. +977-1-4419910/20)
sailesh@icranepal.com

Mr. Bipin Timilsina (Tel No. +977-1-4419910/20)

bipin@icranepal.com

Relationship contacts
Ms. Barsha Shrestha (Tel. No. +977-1-4419910/20)
barsha@icranepal.com

About ICRA Nepal Limited

ICRA Nepal Limited, the first credit rating agency of Nepal, is a subsidiary of ICRA Limited (ICRA) of India. It was licensed
by the Securities Board of Nepal (SEBON) on October 3, 2012. ICRA Nepal is supported by ICRA Limited through a
technical support services agreement, which envisages ICRA helping ICRA Nepal in areas such as the rating process and
methodologies, analytical software, research, training, and technical and analytical skill augmentation.

Our parent company, ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks
and financial services companies as an independent and professional investment information and credit rating agency.
Today, ICRA and its subsidiaries together form the ICRA Group of Companies.

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