By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has assigned Green Infra Wind Power Generation Limited’s (GIWPGL) INR6.29bn bank loan (including INR5bn sub-limit Letter of Credit, LC), INR0.3bn cash credit/overdraft facility and INR2.5bn capex LC an ‘IND BBB’ rating. The Outlook is Stable.

PROJECT PROFILE

 GIWPGL is a 71.53% subsidiary of Sembcorp Green Infra Limited (SGIL). It owns 24MW of operating wind assets (commissioned in 2014-2015), and is constructing 84MW of wind assets located in Davangere, Karnataka. The power generated from the entire capacity will be sold on a group captive basis.

 Rated debt of INR6.29bn comprises of two facilities: facility A (INR5.34bn) earmarked for financing, construction and development of 84MW, and facility B (INR0.95bn) earmarked for refinancing the term loan pertaining to 24MW of operating assets. GIWPGL has been sanctioned an LC facility with a utilisation period of one year for projects that are planned to be setup under GIWPGL by SGIL. The obligations arising from the bills drawn under the LC facility will be met out of proceeds from the bank loan, after achieving financial closure.

KEY RATING DRIVERS

Moderate Construction Risk: The rating reflects the moderate construction risk associated with achieving the commissioning of 84MW by March 2017. Of the 84MW of wind assets under construction, GIWPGL has commissioned 16MW, and has commenced construction on the remaining 68MW capacity. The project scope also involves construction of a 9km transmission line to connect to the Karnataka state grid. The company has entered into a fixed-price contract with Gamesa Renewable Private Ltd. Ind-Ra believes cost escalation is unlikely, however, a delay in project completion cannot be ruled out. The repayment of the facility A, which begins in March 2018, provides a significant cushion against any delay in project completion.

Strong Sponsor: SGIL owns around 960MW of operating and under construction wind and solar projects. SGIL is owned by SembCorp Utilities Pte Limited (68.74%) and IDFC Private Equity Fund III (31.26%). SembCorp Utilities has a strong presence in Asia and is among the leading global energy, water and marine groups operating across six continents. SGIL’s experience in developing and operating renewable projects, and its ownership by a large international infrastructure company are rating positives. SGIL has also demonstrated support for its projects in events of temporary stress.

Limited Counterparty Risk: The counterparty risk is reasonably mitigated by the presence of diversified counterparties and also by the terms of the bank facility, which requires contracting 50% of the capacity with investment grade counterparties. The company has had contracts with 19 counterparties including Ultratech Cement Ltd (‘IND AAA’/Stable), TVS Motor Ltd, Subadra Textile Private Ltd, Sri Anjaneya Cotton Mills Ltd, Roxy Roller Flour Mills (P) Ltd, Ramkumar Mills Pvt Ltd, MFAR Developers Pvt Ltd, Karanja Industries Pvt Ltd, Bhoruka Extrusions Pvt Limited, etc. The termination clauses in the power purchase agreement (PPA) provides an avenue to GIWPGL to make an exit in case of mounting receivables from any particular counterparty. Receivable days for 24MW operating assets stood at 36 days as on March 2016.

Low Operating Risk: GIWPGL has signed fixed-price and fixed-escalation operations and maintenance (O&M) contracts with equipment suppliers, Gamesa Renewable Private Ltd and Wind World India Ltd. The O&M contracts stipulate the confirmed machine availability of 97.5% during high wind season and 97% in low wind seasons. Given the experience of these contractors in the wind sector and observed machine availability of operating projects in Ind-Ra’s portfolio, operation risk is considered low.

Comfortable Debt Structure: The rating also factors in the presence of a debt service reserve account, which covers principal and interest payments for one quarter, and a standard waterfall mechanism. While the debt tenor is 16.5 years, PPA tenor is seven to 10 years. PPAs can further be extended up to five years or any period under mutually agreed terms. The long life of wind assets and low break-even tariffs provide some comfort against tail-end risk.

Moderate Off-take and Revenue Risk:
The rating is underpinned by the PPAs signed with group captive users for a tenor of seven to 10 years. PPA tariff is fixed at a discount to the tariff charged by the state distribution utility. In case of an increase in the tariff determined by the state distribution utility, the tariff charged by GIWPGL will move in tandem, while maintaining a discount compared to the state distribution utilities’ tariff. The company has signed PPAs for the entire 24MW operating capacity and has signed PPAs for 42MW of the 84MW under development. The average tariff of PPAs signed is INR5.50/unit. Additionally, the disbursement of facility A is linked to signing of PPAs milestones of 10%, 50% and 100%.

Significant Volume Risk: The rating is constrained by the volume uncertainty experienced by wind projects. Of the 24MW of operational assets, 20MW in Ramdurga has been operational since two and half years and 4MW in Tadas since one and half year. While the actual plant load factor (PLF) of 20MW in Ramdurga has exceeded the P90 estimate, actual PLF of 4MW in Tadas has fallen below P90. PLF estimate for 84MW which is under development is 33.6%, considering wind turbine generators with a hub-height of 106m. Given the relative lack of operating history of wind turbine generators at 106m hub height and intrinsic risk in wind resource estimation, Ind-Ra considers the volume risk to be significant.

 


RATING SENSITIVITIES

Positive: A higher-than-expected PLF and timely completion of the project, along with signing of PPAs could result in a rating upgrade.

Negative: A lower-than-expected PLF, and/or delay in signing of PPAs and any significant delay in project completion could result in a rating downgrade.



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Analyst Names

  • Primary Analyst

    Ratnam Raju Nakka

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001742

    Committee Chairperson

    Venkataraman Rajaraman

    Senior Director and Head Infrastructure and Project Finance
    +91 44 43401702

    Media Relation

    Satish Nair

    Head - Corporate Affairs and Investor Relations
    +91 22 40001781