|Instrument Type||Date of Issuance||Coupon Rate||Maturity Date||Size of Issue (million)||Rating/Outlook||Rating Action|
|Term loan||–||–||September 2033||INR1,682.4 (reduced from INR1,790)||IND A+/Stable||Affirmed|
The affirmation reflects VEPPL’s strong operational and financial performance, and maintenance of adequate liquidity. VEPPL is resilient to a combination of operational stresses and the project has a strong debt service coverage ratio under the base case estimates. The project’s credit quality is supported by a history of reliable operational performance with timely revenue realisation.
KEY RATING DRIVERS
Operational Performance Marginally Higher than P90 Estimates: The project has been operating at full capacity since December 2015. The average plant load factor (PLF) of 25.23% clocked by the project in FY20 is marginally higher than the P90 estimate of 25.2%, signifying a healthy generation level in the trailing 12 months. The project has demonstrated an average PLF of 24.15% in the last four years, consistent with Ind-Ra’s base case estimates. The grid availability of the project has been consistently over 99%, reflecting the project’s must-run status. The lack of geographical diversification limits the project’s resilience against variations in generation and grid curtailment, however, a low breakeven PLF of 20.04% addresses the risk to some extent by providing adequate margin in case of lower generation.
Firm Offtake Arrangement: VEPPL has entered into a 25-year power purchase agreement with Gujarat Urja Vikas Nigam Limited (counterparty) at a tariff of INR4.15/unit for the entire capacity, which effectively mitigates price risks. The certainty of revenue on a long-term basis with a strong counterparty for the bulk of the capacity augurs well for the rating.
Steady Receivable Profile: Although the project is exposed to single counterparty risk, VEPPL has been receiving payments within two weeks of billing for the last 36 months. Hence, the project has no working capital facility on account of low debtor days. The counterparty- the holding company for state-owned electricity utilities in Gujarat- benefits from low aggregate technical and commercial losses and minimal under recovery in tariffs by the four distribution utilities held by it. Further, Ind-Ra expects the COVID-19 led lockdown to have a nominal impact on the project’s receivable profile.
Experienced Sponsor: The project’s ultimate sponsor Vena Energy Group is a large independent renewable energy company in the Asia-Pacific region with over 11GW of projects in operation and under construction. In India, the group has a 614 MW renewable energy portfolio across Andhra Pradesh (154MW), Karnataka (146MW), Madhya Pradesh (134MW), Telangana (100MW), Gujarat (50MW) and Maharashtra (30MW).
Comfortable Debt Structure: The loan tenor is 16.5 years and the loan documents stipulate the creation of a debt service reserve account equivalent to six months of debt servicing; a cash reserve equivalent to INR33 million, and an operations and maintenance (O&M) reserve equivalent to 12 months of O&M expenses. The rate of interest was fixed till 31 March 2020 and the confirmation on the annual reset is awaited, as on 30 April 2020. The company’s non-convertible debenture and rupee-denominated bonds of INR630 million and INR704 million (not rated by Ind-Ra), respectively, which according to the financial stipulations are subordinated debt and stand on par with equity, have helped the project achieve its favourable debt structure. Shareholder distribution, including the rupee bonds and subordinate non-convertible debentures shall be subject to restrictive financial covenants. The covenants in the loan are debt : equity lower than 1:8:1, annual debt service coverage ratio not less than 1.20x and fixed asset coverage ratio not less than 1.30x. VEPPL complied with these covenants for FY19 and the agency does not expect any breach in covenant compliance to have occurred in FY20.
Liquidity Indicator- Adequate: The project’s strong debt service coverage ratio of around 1.5x provides sufficient cash flow headroom to absorb moderate shocks. In FY20, the project maintained a two-quarter debt service reserve account of INR167.5 million and O&M reserve of INR62 million equivalent to one year of O&M cost. Further, against the stipulated cash reserve, the project has been maintaining cash balance of INR118.75 million in the trust and retention account (TRA) as on 14 April 2020. Although the cash balance is subjected to distribution post the lender’s approval, the presence of sufficient cash in the TRA provides comfort during any adverse events. The project had, as of 30 April 2020, not availed the Reserve Bank of India’s moratorium on loans for March-April 2020.
Moderate Financial Performance: The project reported an operating income of INR414.8 million in 9MFY20 (9MFY19: INR414.6 million; FY19: INR521.1 million). The free O&M period of three years from the commissioning date ended in September 2018 and the O&M was chargeable from 2HFY19. Hence, the project’s O&M expense for FY20 was higher than the previous years. However, based on 9MFY20 performance, the agency estimates the projects EBITDA margin in FY20 to have remained above 80% (9MFY20: 82% FY19: 84%).
Moderate Operating Risk: The wind turbine technologies employed by the project are considered to be standard and proven. VEPPL has entered into an O&M contract with Gamesa Wind Turbines Private Limited (also the turbine providers for the project) at a cost of INR1 million/MW with 5% annual escalation till the 10th year (September 2026). The contract guarantees a machine availability of 96.5% for high wind seasons and 95.5% for low wind seasons during the O&M period. The average machine availability for the last 12 months was 99.21% (FY19: 98.97%; FY18: 97.19%).
Waterfall Mechanism: An independent trustee (IDBI Trusteeship Services Ltd) monitors the TRA and the reserves on which there is a lien. The trustee oversees the escrow mechanisms, including the receipt of revenue and the appropriations therefrom including debt service payments, which is governed by the following prescribed priority in waterfall mechanism: a) statutory dues; b) O&M expenses; c) debt servicing; d) debt servicing reserve; e) cash reserve; f) O&M reserve; and g) distribution account.
Positive: PLF consistently exceeding P90 estimates and coverage consistently higher than 1.5x could result in a positive rating action.
Negative: The below developments could, individually or collectively, lead to a negative rating action:
– PLF significantly lower than P90 estimates
– coverage lower than 1.35x
– payment delays, exceeding three months of operating revenue.