India Ratings and Research (Ind-Ra) has assigned IL&FS Transportation Networks' (ITNL) Rs 1.5 billion short-term unsecured commercial paper (CP) an 'IND A1' rating.

The purpose of the CP is solely to refinance the existing borrowings or CP. ITNL is likely to refinance the newly rated CP by raising funds under long-term borrowing programme over the near term.

The ratings reflect ITNL's strong strategic and operational linkages with its parent, Infrastructure Leasing & Financial Services. ITNL is one of the largest investments of IL&FS and also shares the IL&FS brand name. TNL continues to leverage the parent's strong banking relations. Senior management of IL&FS is on the board of ITNL and IL&FS monitors ITNL's overall operations.

Ind-Ra continues to take a standalone view of ITNL while factoring in any cash flow from its various projects. Cash outflow includes an equity or subordinate debt commitment for under construction projects and also any amount extended to its projects to meet debt obligations at the project level. Cash inflow could arise from interest, dividends, loans or advances or cash surplus at the project level.

ITNL's cash inflow could benefit from the replacement of subordinated debt provided by ITNL to SPVs, with possible external funding. Over FY13-FY14, ITNL upstreamed nearly Rs 7 billion of subordinate debt or short-term loans given to its SPVs as an external lender has taken over that debt.

ITNL will largely remain reliant on external financing for funding equity into the on-going projects over the next 12-24 months. Ind-Ra has calculated net debt considering the preference shares as debt.

Ind-Ra expects the financial leverage to remain high over the next one to two years. However, Ind-Ra takes comfort from ITNL's demonstrated track record of refinancing, completion of a rights issue of Rs 5.25 billion and strong capital market access due to its parentage.