By Ratnam Raju Nakka

India Ratings and Research (Ind-Ra) has assigned MB Power (Madhya Pradesh) Limited’s (MBPL) debt facilities provisional ratings as follows:

Instrument Type

Date of issuance

Coupon Rate

Maturity Date

Size of the issue (million)

Rating/ Outlook

Rating Action

*Proposed rupee term loan

-

13.80% (floating)

April 2034

INR51,960

Provisional IND BB/Stable

Assigned

*Proposed short term loan under working capital facility

-

-

-

INR2,500

Provisional IND A4+

Assigned


*The final ratings are contingent upon the receipt of the pending final documents conforming to the information already received. According to the management, the documentation process under the flexible structuring is underway.  Ind-Ra would look into final documents including but not limited to, loan agreements, accession deed, trust and retention agreements and no dues certificate from all the banks before assigning final ratings. The ratings are for the proposed term loan and working capital facilities of MBPL. The provisional ratings are for the future long term rupee loans and short term rupee loans and do not apply to the existing facilities.

The ratings are constrained by the non-operation of Unit-II due to boiler explosion within two months after the commencement of commercial operations in March 2016 and tight liquidity position aggravated by increasing receivable days from Uttar Pradesh discom. However, the project benefits from low principal repayments in FY18 under proposed facility, long-term power sale agreement with Uttar Pradesh and Madhya Pradesh state utilities, and merchant power tie-up. The insurance claim proceeds received in FY17 and the balance amount to be received by the company in FY18 could temporarily alleviate the liquidity strain. That being said, timely commencement and stabilisation of Unit-II and timely revenue receipts from discoms are crucial for the sustenance of the ratings. The ratings also factor in the proposed mega-power status for the project.

KEY RATING DRIVERS

Stable Unit II Ramp-up Crucial for Rating Sustenance: Unit-I was commissioned on 20-April-2015, and is running satisfactorily. In FY17, Unit-I availability and plant load factor (PLF) haven been hovering in the range of 85% and 70%. The Unit-II was commissioned on 30 March 2016 and is presently non-operational on account of a boiler explosion. Repair and restoration works are going on. MBPL insured the project for material damages and for any loss of profit due to business interruption, post 21 days deductible period. Accordingly, the company received INR2,000 million in FY17 and expects to receive the  balance approved amount  in FY18.

 

Although the temporary liquidity issues could be alleviated by the insurance proceeds timely commencement of Unit-II and a stable ramp up is pivotal for the ratings’ sustenance.

 

Revenue Risk: MBPL has moderate revenue risk given that the power purchase agreements (PPAs) for 67% of the installed capacity (1,200MW) have been signed for the tenor of 20 to 25 years with MPPTCL and UP discoms. 360MW tied up with MPPTCL will receive capacity and variable charges based on Madhya Pradesh Electricity Regulatory Commission’s norms. Another 60MW sold to MPPTCL will receive only variable charges. Tariff for 383MW tied up with the UP discoms was discovered in case-1 bid. MBPL has also tied-up short term PPAs/merchant power for 350MW. Any delays in the Unit II and low PLFs on the Unit II could stress the coverage ratios.

Operation Risk
: Operation & Maintenance (O&M) is carried out in-house. MBPL’s in-house O&M team has adequate experience in commissioning and operation of power plants. The management expects the O&M cost to be at INR16.2m/MW which is higher than the normative O&M cost of INR15.0m/MW according to Central Electricity Regulatory Commission’s norms.

 

Full Fuel Availability Under Long-term Fuel Supply Agreement (FSA): MBPL has entered into a Fuel Supply Agreement (FSA) with Southern Eastern Coalfields Limited (SECL) for a 20 year long-term supply of 4.99MTPA . Subsequently, FSA for Annual Contracted Quantity (ACQ) of 3.5MTPA has been signed by the company. ACQ quantity will be adjusted in accordance with further tie up of capacity under long-term PPA. Balance coal of 0.90 MTPA is proposed (by the management) to be procured from e-auction sources.

 

Coal from SECL mines is being transported from Korba to Jaithari line of South Eastern Railways (SECR) and from Jaithari to plant through a dedicated private railway siding.

 

Counterparty Risk: Madhya Pradesh Power Trading Company Ltd (MPPTCL) of Madhya Pradesh and Uttar Pradesh Power Company Ltd (UPPCL) of Uttar Pradesh are the two major off-takers of the project. MPPTCL had been making payments to the project company on an average within 30 days and UPPCL within 60 days. However, UPPCL has been delaying payments in 4QFY17 thereby stressing the project liquidity. Ind-Ra’s assessment on the financial and operational profile of the off-takers is moderate to weak.

 

Moderate Debt Structure: The project company has opted for the flexible structuring of the long-term loan facilities and the repayments in FY18 are minimal. 75% of the proposed rupee term loan would have a repayment tenor of 18 years with 72 structured quarterly instalments commencing from May1, 2016 and ending April 15, 2034. Balance proposed rupee term loan would have a repayment tenor of 16.5 years with 66 structured quarterly instalments commencing from November 1, 2017 and ending February 1, 2034. Terms and conditions of other long term loans USD126.27 million ECB will remain unchanged and principal repayments and interest payments are hedged for 10 years.

Debt Service Reserve Account (DSRA) for two quarters of debt servicing is stipulated by the lenders and the same has to be created by 30 September 2019.

 


RATING SENSITIVITIES

Positive: Stabilisation of both the units, proven track record of timely receipt of tariffs from discoms in accordance with the PPA, higher PLFs leading to sustained improvements in coverage ratios beyond Ind-Ra’s base case could result in rating upgrade.


Negative: Individual or combined impact of the following could lead to rating downgrade

1. Any further increase in receivable days, 

2. Delays in receipt of insurance claims

3. Delays in commissioning and stabilisation of Unit II

4. Significant increase in operating costs

5. Failure to obtain mega power status



COMPANY PROFILE

MBPL is a 100% subsidiary of Hindustan Thermal Projects Limited (“HTPL”). HTPL in turn is a 100% subsidiary of Hindustan Power Projects Private Limited (“HPPPL”). HPPPL is the energy holding company of the group and has 100% step-down subsidiaries for Thermal, Hydro and Solar verticals.

MBPL has set up a 2 x 600 MW coal based sub-critical thermal power plant in district Anuppur of Madhya Pradesh. Unit-I (600 MW) of the plant was commissioned on 20 April 2015 and Unit-II (600 MW) was commissioned on 30 March 2016. However, Unit-II is has been non-operational since May 2016 on account of boiler explosion. The final project cost was INR80.00 billion (excluding custom and excise duties of INR5.3 billion) as against original envisaged cost of INR62.40 billion. The equity injected by the sponsors was INR 20.95 billion and the debt/equity ratio was 2.83:1. The total debt outstanding including working capital limits at the end of February was INR 65.19 billion.


In FY16, MBPL has reported revenue of INR12,453 million and EBITDA of INR 3,776 million. The total debt outstanding at end February was INR65.19 billion.



COMPLEXITY LEVEL OF INSTRUMENTS

Project loans are instruments with moderate complexity levels where the relationship between the inherent risk factors and intrinsic return characteristics is less straightforward given the presence of certain contingency features. Special Purpose Vehicle structure is backed by a single asset.

For more information, visit
www.indiaratings.co.in/complexity-indicators

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.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has six branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad and Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

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

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121