India Ratings and Research (Ind-Ra) has affirmed Clean Solar Power (Chitradurga) Private Limited’s (CSPPL) term loans at ‘IND BBB’ while resolving the Rating Watch Negative (RWN). The Outlook is Negative. The detailed rating actions are as follows:
| Instrument Type | Date of Issuance | Coupon Rate (%) | Maturity Date | Size of Issue (million) | Rating/Outlook | Rating Action |
| Bank loan | – | – | – | INR2,200 | IND BBB/Negative | Affirmed; Off RWN |
| Working capital facility | – | – | – | INR100 | IND BBB/Negative | Affirmed; Off RWN |
Ind-Ra continues to take CSPPL’s standalone view to arrive at the rating because of the financial covenants and waterfall arrangements are specific to each special purpose vehicle (SPV).
The RWN has been resolved following an improvement in payment realisation from Telangana State Southern Power Distribution Limited (TSSPDCL) since December 2019 and the creation of one quarter of debt service reserve account (DSRA) by CSPPL, as stipulated in the financing documents.
The affirmation reflects an improvement in CSPPL’s plant load factor (PLF) and a correction in the performance of the trackers in July 2020. CSPPL exhibited a lower-than-expected power generation in FY20, due to the underperformance of the trackers, lower irradiation and a decline in grid availability during certain months of FY20. Furthermore, CSPPL’s debt servicing in FY20 was supported by the sponsor Hero Solar Energy Private Limited (HSEPL).
The Negative Outlook reflects uncertainties in CSPPL’s power generation in FY21, given the functioning of the trackers is yet to be demonstrated.
KEY RATING DRIVERS
Improvement in PLF in 4MFY21: CSPPL’s average PLF improved by around 15.63% yoy during April to July 2020, although remained lower than Ind-Ra’s base case expectations, on account of the rectification of the concerns in the trackers.
During FY20, the company’s average PLF was around 31% lower than the P90 levels. This according to the management was due to lower irradiation levels, contributed by heavy monsoons, ineffective functioning of the trackers and temporary lower grid availability during September to October 2019. The average machine and grid availability were 99.50% and 98.01%, respectively, in FY20 with lower grid availability of 94.54% during August to November 2019. CSPPL’s operating revenue was INR303.38 million in FY20 (FY19: INR75.39 million) and EBITDA was INR264.22 million (INR41.13 million).
The modules are supplied by Trina Solar Limited. CSPPL employs a single-axis tracker, which is likely to improve the generation by about 20%. According to the management, the issues related to the trackers were resolved by July 2020 and the sponsor has given an additional support to address the concerns of the trackers.
Sponsor Support: The sponsor’s undertaking to retain management control, meet any cost overruns, and provide support by replenishing the one quarters’ DSRA in case any of the existing debt service reserve is entirely used, strongly supports the ratings. The sponsor provided support of around INR320 million in the form of a subordinated unsecured loan in FY20. CSPPL has sufficient liquidity and as per the management and additional support from the sponsor may not be required in FY21. However, Ind-Ra believes that CSPPL may continue to need sponsor support if the PLF is less than 20%.
Comfortable Debt Structure: The project debt will amortise in 68 structured quarterly instalments ending in FY35. The project has standard project finance features, including a cash flow waterfall mechanism. The entire buyer’s credit availed by CSPPL was closed in FY20. The availability of buyer’s credit reduced the company’s finance costs till FY20. The compulsorily convertible debenture and subordinated debt/unsecured loan/any sponsor loan are considered as significantly subordinate to the senior debt, based on the confirmation from CSPPL and disclosures in its FY19 annual report. Payments towards these instruments are subject to complying with restricted payment conditions, according to the loan agreement and any change in this arrangement would impact the ratings.
Financial covenants for the rated term loan include a minimum debt service coverage ratio of 1.10x, a maximum debt/equity of 3.45x and a minimum fixed asset coverage ratio of 1.1x. Any consequence of the non-compliance of the financial covenants will be reviewed by Ind-Ra for its effect on CSPPL’s cash flows.
Liquidity Indicator – Adequate: CSPPL’s liquidity has significantly improved over the six months ended July 2020 due to the release of payments from TSSPDCL. The project also has created a one quarter of DSRA of around INR76.2 million as stipulated and has a cash balance of around INR85 million as on 28 August 2020. CSPPL has an unutilised working capital limit of INR100 million.
CSPPL availed debt moratorium under Reserve Bank of India’s COVID-19 relief package for March to May 2020. The repayments for March to May 2020 have been shifted by one quarter and the interest for the months of March 2020, April 2020 and May 2020 is to be paid in June 2020, July 2020 and August 2020, respectively.
Decrease in Receivables from Off-taker; Still Outstanding Dues: In August 2020, TSSPDCL had released payments until February 2020. Around INR82.2 million of the invoices have been cleared in July 2020, leading to an improvement in CSPPL’s liquidity. The dues from the off-taker stand at about five months.
The gap between the average revenue realised and the average cost of supply on a subsidy-booked basis for TSSPDCL increased to INR1.13/kWh in FY19 (FY18: INR1.03/kWh) and payable days as of FY19 was 251 (FY18: 220) according to Report on Performance of State Power Utilities 2018-19. The Telangana government approved the issue of government guarantee to avail loans from Power Finance Corporation Limited and REC Limited (‘IND AAA’/Stable) for Telangana distribution companies in July 2020. The proceeds from such loans are to be used for repayment to independent power producers, and centrally-owned generation and transmission companies. Ind-Ra expects TSSPDCL’s payments to improve in FY21 on account of these loans. However, an improvement in average revenue realised-average cost of supply gap and a timely receipt of subsidy from the government is critical for sustained timely payments for power generation companies.
RATING SENSITIVITIES
Negative: A depletion of the DSRA on a sustained basis, PLF remaining below 20%, an increase in receivable days by 90 days and absent sponsor support will lead to a rating downgrade.
Positive: A Stable Outlook would result from the PLF being in line with the P90 estimates for a continuous period of six months along with no reliance on sponsor support to meet debt servicing. Operating performance above P90, with regular receipts from the off-taker and a debt service coverage ratio of above 1.15x on a sustained basis may lead to a rating upgrade.
