India Ratings and Research (Ind-Ra) has assigned Mundra Solar PV Limited (MSPVL) a Long-Term Issuer Rating of 'IND BBB'.
The Outlook is Stable. A full list of rating actions is at the end of this commentary.
MSPVL is setting up a 1.2GW solar photovoltaic (PV) cell and module manufacturing capacity at the Adani Ports & Special Economic Zone, at a total cost of INR19.95bn. The project is likely to achieve a commercial operations date in April 2017.
KEY RATING DRIVERS
Strong Sponsors: MSPVL is promoted by Adani Green Energy Ltd, which is held by Adani Enterprises Ltd and Adani Properties Private Ltd in the ratio of 51:49. The group has a decade-long experience in the successful execution of large size and complex projects. Adani Enterprises Ltd has also given corporate guarantees against MSPVL’s rupee term loan till the achievement of COD or the creation of a debt service reserve account, whichever is later.
Limited Off-stake Risk: Off-take risk is manageable given the government of India’s thrust on the development of solar power projects in the country. It has set a target to reach 100GW of installed solar power capacity in India by 2022 (rooftop: 40GW; solar park: 20GW; grid-connected: 40GW). Adani group has been actively bidding for solar projects under different government schemes. The group has around 2GW of solar power capacity (two-thirds is under development). A significant portion of the proposed capacity is likely to be supplied to group projects in the solar power space. MSPVL has obtained an order of 350MW from Adani Green Energy Ltd. Ind-Ra also expects counterparty risk to be manageable as demand for MSPVL’s products would emanate from solar power projects particularly those projects where funds are arranged through debt and equity.
Strong DSCR: Ind-Ra expects a base case average debt service coverage ratio (DSCR) of 1.40x (minimum DSCR: 1.30x) over the loan tenor. However, the DSCR working includes a capital subsidy of INR3.31bn (20% of plant & machinery costs), to be received in FY18 (nine months from COD), and a production subsidy of 10% on cell manufacturing. In case the subsidies are not approved, the base case average DSCR is likely to be around 1.08x. The DSCR calculation does not include the three-month debt service reserve account proposed under the sanctioned bank facility.
Moderate Technology Risk: The three prevalent PV module types – thin film, mono-crystalline and multi-crystalline - have been in use since 1980. The evaluation has been in terms of efficiency, which comes from improvements in silicon purity, improvements in the process, a reduction in wafer thickness, use of multi bars etc. Most of the innovation solutions in the entire value chain are provided at the cell production level. MSPVL has set up a strong managerial and operational team which has relevant experience in the solar industry. It has also entered into agreements with world’s leading organisations in solar technology for technology transfer and process consultancy. MSPVL will also have a dedicated team for research and development of its product.
Moderate Commodity Price Risk: Prices of solar PV modules have corrected significantly over FY12-FY16. This correction mirrors the correction in solar wafer/silicon prices which is the raw material for manufacturing solar cells. The correction in solar wafer prices is mainly on account of a significant increase in silicon production. Also, the consumption of wafer per watt of cell has reduced significantly over the last couple of years which also helped in reduction of module prices. Despite the correction in the module prices, global PV manufacturing players have generated sufficient delta (realisation/Wp less cost of goods sold/Wp). Thus, the margins in the solar PV manufacturing space have been more sensitive to technology efficiency than the price, which has moved in tandem of raw material prices.
Commodity price risk is also limited as the inventory days are likely to be around 30 (base case 45 days). However, if the company enters into long-term contracts for the supply of wafers at fixed costs, this may make MSPVL susceptible to higher-than envisaged commodity price risk.
Highly Competitive Industry: The solar module industry has many large global players, with majority of the installed capacity based in China and Taiwan. In India, solar PV cell and module manufacturers have not kept pace with global players as they find it difficult to match their performance efficiency and cost efficiency with them. Indian players are much smaller in size, and thus do not have economies of scale. Also, many of these players have installed capacities during 2009-2010 when the capex cycle was at its peak, which led to significantly high capital costs for them.
Adani is setting up a large capacity which is comparable with its global peers’. It has an added advantage of having latest technology and installing it at the bottom of the capex cycle. The large scale of operations would provide it a competitive advantage for the procurement of raw materials. Also, the government of India is trying to support domestic manufacturers through policy measures such as the domestic content requirement for some of the projects bidding under Jawaharlal Nehru National Solar Mission.
No Operational Track Record: The ratings are also constrained by the lack of an operating track record of the project.
Positive: Successful commissioning of the project within the envisaged time and cost and stabilisation of operations with DSCR above 1.4x could result in a positive rating action.
Negative: Any cost overrun or lower-than-envisaged capital and production subsidy could result in a negative rating action.
MSPVL is setting up a 1.2GW cell and module manufacturing capacity - 900MW multi-crystalline, 200MW mono-crystalline and 100MW bifacial-mono module. The plant is located at the Adani Ports & Special Economic Zone, and is being developed by Mundra Solar Techno Park Pvt Ltd which is a subsidiary of Adani Ports and Special Economic Zone Limited (‘IND AA+’/Stable). MSPVL is also likely to benefit from the strategic location of plant from the import/ export perspective and the electronic manufacturing cluster and the eco-system being developed around the location.
- Long Term Issuer Rating: assigned ‘IND BBB’/Stable
- INR13,970m term loan facility: assigned ‘IND BBB’/Stable
- *Proposed INR1,210m fund based limits: assigned ‘Provisional IND BBB’/Stable and ‘Provisional IND A3+’
*The above ratings are provisional and shall be confirmed upon the sanction and execution of loan documents for the above facilities by MSPVL to the satisfaction of Ind-Ra.|