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Ind-Ra has analysed the project at a standalone level while rating the senior debt. In addition to plain equity, the sponsors have infused funds in the form of preference shares and unsecured loans. According to the terms shared by the management, these funds are completely subordinated to the senior debt. The financing documents and cash flow waterfall also delineate the subservient nature of sponsor debt obligations. Ind-Ra continues to exclude the servicing of sponsor debt obligations while arriving at the rating. Thus, the inclusion of these funds into the debt category could impact the rating.
The affirmation reflects DDWL’s strong stable operational track record of over three years, marginally better-than-expected financial performance in 9MFY20, its offtaker’s stable payment history and the presence of a two quarters’ debt service reserve. The rating is strengthened by the company’s 25-year power purchase agreements (PPA) with Gujarat Urja Vikas Nigam Limited (GUVNL) and its adequate internal liquidity, which can withstand any temporary cash flow mismatches. However, the rating continues to be constrained by the inherent revenue risk resulting from volatility in wind availability.
KEY RATING DRIVERS
Demonstrated Operational Track Record: The project has demonstrated a stable operating history since the commissioning of its full capacity in January 2017. The plant achieved a weighted average net plant load factor (PLF) of 36.61% in the 24 months ended March 2020, close to the net P75 PLF of 36.83%. Ind-Ra will continue to monitor the PLF, which is a key rating sensitivity.
Long-Term Offtake Secures Cash Flows: DDWL has signed 25-year-long PPAs for its project with GUVNL at a weighted average tariff of INR4.18 per unit of electricity. The project has been receiving payments in about six days from the date of invoice on average since commissioning. Moreover, month-on-month realisations have been above 98.50% owing to a rebate for early payment by the off-taker. The project is also eligible for receiving generation-based incentives (GBI), the last payment of which was received in March 2020. Ind-Ra has already accounted for the delays in receiving GBI payments from the authority in its projections. However, the project is not dependent on the income from GBI for meeting its debt servicing and other obligations.
Diversified Sponsor and Group Profile: DDWL is a subsidiary of M/s Baidyanath Power Private Limited. Baidyanath is a diversified group that is primarily engaged in the field of Ayurvedic medicines and other related products. The group has an operating wind power capacity of about 108.65MW, indicating reasonable presence and experience in the sector. DDWL has invested INR270 million into group entities in the form of option convertible preference shares. Ind-Ra considers the sponsor’s experience in operating wind projects of DDWL’s size to be adequate.
Modest Debt Structure: The rated debt of INR2,420 million is repayable in 76 structured quarterly instalments, commencing on 31 March 2018 and ending on 31 March 2037. The project has standard project finance features, including a cash flow waterfall, a debt service reserve equivalent to two quarters’ principal and interest payments (already created), an operations and maintenance (O&M) reserve equivalent to three months of O&M expenses and a cash reserve of INR10 million. The financing documents also specify a cash sweep at the option of the lenders from the surplus cash flows generated by the project.
Liquidity Indicator – Adequate: DDWL’s cash flows are adequate to meet its debt servicing requirements with a forward-looking average debt service coverage ratio (DSCR) of above 1.2x. The structure is resilient to the moderate amount of stresses applied on the generation levels, operating costs, interest rates and receivable days from the off-taker. The project continues to maintain a debt service reserve equivalent to six months’ debt servicing payments in the form of fixed deposits and bank guarantee. It also has adequate cash and cash equivalents (about INR140 million as on 24 April 2020) to meet any temporary cash flow mismatches in the project. While the principal for March 2020 has been paid, DDWL placed a request to adjust the payment towards the upcoming principal payment due in June 2020, under the COVID-19 regulatory package offered by the Reserve Bank of India. The lender has agreed to approve the request.
Moderate Technology and Operating Risks: Given that DDWL is a wind power project, it is exposed to the revenue risks arising from the volatility in wind availability. Ind-Ra considers the wind turbine technology employed by DDWL to be standard and proven. M/s Vestas Wind Technology India Private Limited (Vestas) is the wind turbine generator supply, erection and commissioning and O&M contractor for the project. The O&M contract is a fixed-price contract for a medium term of five years, with defined indexation. The company employs Vestas’ wind turbine generators with a hub height as well as rotor diameter of 110m, resulting in significantly better power generation than that generated by its older counterparts. Over the 24 months ended March 2020, the average monthly grid and machine availabilities were above 99%, which are comfortable levels as per industry standards.
Negative: Operational and financial performance lower than Ind-Ra’s base case estimates with a minimum DSCR of below 1.10x over the next five years, a sustained increase in the receivable days from the offtaker beyond 75 and the depletion in debt service reserve could lead to a rating downgrade.
Positive: Sustained operational and financial performance in line with Ind-Ra’s base case estimates with a forward-looking average DSCR of at least 1.2x could lead to a rating upgrade.
DDWL has set up a 30MW wind farm in the Devbhoomi Dwarka district of Gujarat. The site consists of 15 V-110 wind turbine generators of 2MW-rated capacity each, with 110m hub height and 110m rotor diameter, manufactured by Vestas.
The project was originally funded in a debt/equity ratio of 75:25. Subsequently, DDWL refinanced the loan with a higher debt of INR2,420.0 million. The project fully commenced commercial operations on 21 January 2017.