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India Ratings and Research (Ind-Ra) has taken the following rating actions on Adani Green Energy (MP) Limited’s (AGEMPL) term loans:
| Instrument Type | Date of Issuance | Coupon Rate (%) | Maturity Date | Size of Issue (million) | Rating/Outlook | Rating Action |
| Rupee term loan (SECI-I) | – | – | November 2038 | INR2,803.80 | IND BBB+/Stable | Assigned |
| Rupee term loan (SECI-II) | – | – | March 2039 | INR2,000.0 | IND BBB+/Stable | Assigned |
Analytical Approach: Ind-Ra has analysed the credit profile and projected cash flows of three operational projects – SECI-I and SECI-II (wind power projects of 50MW each) housed within AGEMPL and Adani Renewable Energy (GJ) Limited (AREGJL), which is a 100% subsidiary of AGEMPL and houses a 75 MW operational wind project, to arrive at the ratings. Since cash upstreaming is possible after meeting restricted payment conditions of these individual projects, Ind-Ra has followed the residual cash flow approach between these three projects (which are operational) to evaluate the combined credit profile of AGEMPL.
While AGEMPL will house another under-construction wind project of 250MW (SECI-III) and an another 300MW in its 100% subsidiary Adani Renewable Energy (TN) Limited (ARETNL), they are still in nascent stages and Ind-Ra will evaluate their impact on the ratings after there is clarity regarding the cash flows. The agency has relied on the management’s confirmation that all equity and support requirements in AGEMPL as well its subsidiaries will be met by the sponsor – Adani Green Energy Limited (AGEL, ‘IND A’/RWE).
KEY RATING DRIVERS
Fully Contracted Revenue Mitigates Price Risk: AGEMPL has two projects – SECI-I and SECI-II, both with a capacity of 50MW, located in the Kachchh district of Gujarat. The rating is anchored by AGEMPL’s (SECI-I project) long-term power sale tie-up with PTC India Limited (PTC) for 50MW at a fixed tariff of INR3.46/kWh, and the tie-up with Solar Energy Corporation of India Limited (SECI) for another 50MW (SECI-II project) at a fixed tariff of INR 2.65/Kwh; both the agreements are tied-up for a 25-year period. PTC has back-to-back power sale agreements with two discoms – Uttar Pradesh Power Co. Ltd. (UPPCL) for 40MW and Noida Power Co. Ltd. (NPCL, IND AA-/Stable) for 10MW. PTC’s trading margin is INR0.07/kWh for the entire 50MW. PTC is obligated to pay the developer before the due date, even in case of delays in receipt of payment from the discoms, as per the terms and conditions of tie-up. SECI’s established profile of making timely payments to the developers provides comfort to the ratings. Timely receipt of payments from the offtakers will remain a key rating monitorable.
Limited Operational History a Constraint: SECI-I project was commissioned on 4 November 2019, while SECI-II started operations on 7 March 2020 and is in the stabilisation period. The operational history of just two-to-five months is a constraining factor, given the large volatility observed in wind power generation projects in Ind-Ra portfolio during the stabilisation period. The gross and net P90 plant load factor (PLF) values for 20 years are 46.96% and 40.86%, respectively, for SECI-I, and 39.68% and 33.64%, respectively, for SECI-II, as per the recent wind resource assessment done by TUV Rheinland. AGEMPL has declared a PLF of 36.0% for both projects, as stipulated in the power purchase agreements (PPA). Any surplus generation beyond the maximum offtake limit of 120% of declared PLF can also be sold to third parties, whereas the developer would have to pay compensation for generation below 90% of the declared PLF, as per the terms and conditions of PPA. However, achievement of an average annual PLF of 34% one year from commissioning in both projects as per the banking base case is a restricted payment condition, as well as key rating monitorable.
Strong Sponsor Profile: The Adani group is one of India’s leading business houses, having a presence in key industry verticals such as natural resources, logistics and energy. The group manages its major businesses through its six listed companies – Adani Port and Special Economic Zones Limited (APSEZ, ‘IND AA+’/Stable), Adani Transmission Limited (ATL, ‘IND AA+’/Stable), AGEL (‘IND A’/RWE), Adani Power Limited (APL), Adani Gas Limited (AGL) and Adani Enterprises Limited (AEL). AGEL, founded in 2015, has a renewable energy portfolio of approximately 5,990MW, with 2,595.6MW being operational and the remaining being under-construction capacity. In April 2020, AGEL sold 50% stake in its operating solar assets of 2,148MW to Total Gas & Power Business Services SAS in a joint venture company. According to the management, part of the sale proceeds shall be utilised for funding the equity requirement in under-implementation projects. The freeing up of capital exhibits the capability and strength of the Adani group.
Sponsor Support: The sponsor, AGEL has undertaken to meet any cost-overrun support requirement in the projects. Additionally, the management has confirmed that, in the event of a shortfall during the operational period, any support requirement will be met by the sponsor. Moreover, there are corporate guarantees from AGEL to support the projects until the debt service reserve account (DSRA) is created, any overrun is funded and one year of operations is completed.
Moderate Technology and Operating Risks: The operations and maintenance (O&M) contractors for SECI-I and SECI-II are Suzlon Global Services Limited and Inox Wind Infrastructure Services Limited, respectively. They will perform the O&M services free of cost for the initial three years from the commissioning dates. The O&M price, which would be applicable from the fourth year, stands at INR1.8 million/wind turbine generator (WTG) (INR0.86 million/MW, escalated by 4% annually) for SECI-I and INR1.3 million/WTG (INR0.65 million/MW, escalated by 5% annually) for SECI-II. Post the stabilisation period, the O&M contract includes penalties for not achieving the average minimum machine availability of 97% during high wind season and 96%/95% during low wind season. Considering the weak financial profile of the O&M contractors, any lapses in their performance, leading to reduced generation, thereby affecting the cash flows, could lead to a negative rating action. However, the Adani group’s financial and operational capabilities are an important consideration for the rating.
Liquidity Indicator – Adequate: The debt service reserve account (DSRA) of one quarter (part of project cost), INR100 million in SECI-I and INR78.6 million in SECI-II, has already been created in the form of fixed deposits. As on 5 May 2020, the cash balance in SECI-I and SECI-II was INR106.9 million and INR0.08 million, respectively. An additional one quarter DSRA shall be created from project cash flows. While repayment is yet to begin in both projects, the quarterly interest servicing provides some cushion for absorbing the costs arising out of operational issues, if any. SECI-I has received a letter of credit (LC) (equivalent to average one month billing) as payment security for 10MW capacity from PTC, and LC for the balance 40MW is being processed. Similarly, for SECI-II, the management expects to receive the LC from SECI in due course. Ind-Ra will monitor the creation of balance DSRA and receipt of LCs from the counterparties. The company has not availed moratorium for debt servicing.
Moderate Debt Structure: Both SECI-I and SECI-II debt will be amortised over 72 structured quarterly instalments, beginning one year post COD (3QFY21 and 4QFY21, respectively). The quarterly interest servicing gives the company some cushion to mitigate the risk associated with delayed payments from the counterparties. The presence of a common lender for both projects ensures easier operations, similar debt terms and better control over the movement of funds. Moreover, lenders have the right to utilise 50% of the excess surplus cash above a debt service coverage ratio of 1.25x towards the repayment of debt in the inverse order of maturity (cash sweep) after the expiry of four years from the COD. The management has confirmed that there is no external debt in AGEMPL apart from SECI-I and SECI-II term loans and that the unsecured loans from sponsor/related parties are subordinated to the secured term loans. Any deviation from this stance of the management will be credit negative.
RATING SENSITIVITIES
Positive: Plant performance in line with P90 estimates and average debt service coverage ratio above 1.20x for a sustained period of time could result in a positive rating action. Ind-Ra will also evaluate performance and credit profile of under-construction projects and other projects in the pipeline before any upgradation.
Negative: The following, individually or collectively, could result in a rating downgrade:
– Sustained low plant performance, leading to a reduction in the average coverage ratios below 1.15x
– Significant increase in receivable days, substantial under-realisation of tariff in operating projects
– Significant addition of under-construction or projects with weak credit profiles within AGEMPL or as a subsidiary
– Depletion of DSRA and/or absence of sponsor support
– Increase in debt, which could adversely impact the cash flows of existing projects
