India Ratings and Research (Ind-Ra) has maintained Ostro Mahawind Power Private Limited’s (OMPPL) term loan rating on Rating Watch Negative (RWN) as follows:
|Instrument Type||Date of Issuance||Coupon Rate (%)||Maturity Date||Size of Issue (million)||Rating/Rating Watch||Rating Action|
|Term loan||–||–||30 September 2020||INR4,450||IND BBB/RWN||Maintained on RWN|
KEY RATING DRIVERS
Continuing Refinancing Risk: The maintenance of RWN reflects the persistent refinancing risk posed by the continued delays in the materialisation of the refinancing timelines provided by the management. However, OMPPL has availed of an extension of moratorium under the COVID-19 regulatory package for the bullet maturity refinancing and resultantly, the repayment timeline has been shifted by a month to 30 September 2020. Furthermore, Ind-Ra takes comfort from the loan being fully lien marked with non-withdrawable deposits amounting to INR4,200 million.
The sponsor group – Renew Power Private Limited (RPPL; previously Renew Power Limited) and its associates – has confirmed to the agency that it will meet the term loan maturity, if the refinancing efforts do not materialise by end-September 2020. Ind-Ra will monitor the materialisation of this refinancing in September 2020 and the sponsor group’s capability for funding the bullet maturity. The Renew Group is trying to tie-up funds through a new term loan from a different financial institution. The sponsor has prepaid INR2,500 million and there is a bullet maturity of INR4,165 million, on 30 September 2020.
Strong Sponsor Support: OMPPL is a wholly owned subsidiary of Ostro Energy Private Limited and entirely held by Renew Power Services Private Limited, which is a wholly owned subsidiary of RPPL. RPPL has commissioned close to 5GW projects till 31 March 2020. Renew Power Services has undertaken to support payment obligations towards the term loan and also arrange for any required financial support for OMPPL. RPPL had consolidated cash of INR39 billion, as on 20 August 2020, thereby indicating its adequate reserves to handle the interim funding of bullet maturities, while a long-term tie-up is in process.
FY20 Performance in Line with Ind-Ra estimates: OMPPL’s operating revenue grew to INR777.61 million in FY20 (FY19: INR774.04 million) in line with Ind-Ra’s base case estimates. The wind plant has an operational history of almost three years and has generated a mean plant load factor of around 33.3% for FY20 (FY19: 33.2%) which is at par with P90 level of generation, as per the wind resource assessment study; Ind-Ra has considered P90 plant load factor of 33.2% in its base case analysis. The machine availability averaged 99.41% for FY20, which is higher than the 97.5% mentioned in the operations and maintenance (O&M) contracts, while the grid availability at the site has averaged 99.02% over the same period.
Fully-Contracted Revenue Mitigates Price Risk: The rating is anchored by the presence of a 20-year power purchase agreement signed with Hubli Electricity Supply Company Limited (HESCOM) at a fixed tariff of INR4.50 per unit.
Weak Debt Structure: The debt is fully amortising, and was repayable in seven structured quarterly instalments beginning August 2018 over two years, followed by the bullet payment of INR4,165 million due by 30 September 2020 after seeking the extension of moratorium, thus posing a refinancing risk. The company had informed the agency that efforts to refinance are underway and multiple options have been pursued over the last several months. Refinancing visibility through a new debt facility was expected by the management by end of August 2020.
However, despite the delay in refinancing, the availability of cash buffer at RPPL to meet such contingencies is considered in Ind-Ra’s analysis. The interest rate is payable monthly and is linked to the floating base rate. A debt service reserve account equivalent to one month’s interest as well as principal payments, excluding the bullet maturity, is maintained. Financial covenants such as maintaining an interest service cover of minimum three months; minimum EBITDA of INR8,400 million and asset cover ratio of 1.1x, are a part of the financing agreements.
Liquidity Indicator – Stretched: OMPPL had a debt service reserve of INR40 million, equivalent to one month’s principal and interest and free cash of INR117 million, as of 31 August 2020. The immediate liquidity risk is of meeting the bullet payment, for which the sponsor is relied upon.
Moderate O&M Risk: A fixed-time, fixed price O&M contract is signed with Gamesa Renewable Private Limited, which has implementation experience of more than 24,000MW around the world and maintenance experience of over 16,000MW. The O&M contract includes standard clauses such as providing annual machine availability at 97.5% during high wind season (April-September) and at 96.5% during low wind season (October-March) and fixed annual cost escalation mitigating operating risks to a considerable extent.
High Counterparty Risk: The rating continues to be constrained by the erratic receipts of power sale proceeds since commissioning from the counterparty HESCOM. Receivable days have improved to 223 in FY20 (FY19: 260). The last payment for October 2019 was received in April 2020. According to FY19 annual report, HESCOM’s payable days were 382 (FY18: 375). Dependence on a single counterparty for revenue limits the resilience of the project. Continuation of payment delays or any indication of discontinuation of sponsor support could affect the rating negatively.
The RWN indicates that the ratings would either be downgraded or affirmed. Ind-Ra will resolve the RWN on visibility on the refinancing of the term loan before mid-September 2020. Any delay in refinancing timelines will result in a negative rating action.
Negative: Absent sponsor support for meeting the bullet maturity may result in a rating downgrade. Delay in refinancing beyond September 2020 will lead to a downgrade.