Detailed Rationale

CRISIL Ratings has upgraded its rating on the bank facilities and non-convertible debentures (NCDs) of Adani Green Restricted Group (AGRG) namely Prayatna Developers Pvt Ltd (PDPL), Parampujya Solar Energy Pvt Ltd (PSEPL) and Adani Green Energy (UP) Ltd (AGEUP) to ‘CRISIL AA+/Stable’ from ‘CRISIL AA/Stable’

 

The rating upgrade follows improvement in the financial risk profile on account of lowering cost of debt and continued track record of better than P90 performance. Refinancing of US$ 500 million bonds has been done with US$ 409 million bonds eliminating refinancing risk and also lowering cost of debt i.e. landed cost of debt decreasing from 11.09% earlier to 10.3% (CRISIL Ratings expectations). The weighted average plant load factor (PLF) for AGRG for trailing twelve months ending January 2024 improved to 23.64%, which was better than P90 PLF of 22.76% (factoring in annual degradation).

 

The rating reflects strong revenue visibility for AGRG in the form of long-term power purchase agreement (PPA) at a healthy tariff, co-obligor structure of special purpose vehicles (SPVs) providing diversity benefit, restricted payment and cash trap conditions. These strengths are partially offset by exposure to risks inherent in operating solar-energy assets and adverse movement in foreign exchange (forex).

 

CRISIL Ratings has also withdrawn its rating on non-convertible debentures of Rs 284 crore on the basis of independent confirmation and request from company. The withdrawal is in-line with CRISIL Ratings' policy on withdrawal of instruments (See ‘Annexure - Details of Rating Withdrawn' for details).

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of the three SPVs in AGRG in-line with CRISIL Ratings’ criteria for rating entities in homogeneous groups and equated the rating of the individual SPVs to the group. The three entities consolidated as AGRG are PDPL, PSEPL and AGEUP. The entities are in a homogeneous group since they are in the same line of business of operating solar power assets, have common management and treasury team and are critical to AGRG. Each of the SPVs acts as a co-obligor to the other. Post debt servicing in each SPV, excess cash flows are largely available for use across the group. Any deviation in this understanding shall be a key rating sensitivity factor.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Healthy financial risk profile

The 930 megawatt (MW) projects have capacity weighted average vintage of over 6 years, providing useful life of well over ~19 years after the USD bonds. The financial risk profile is expected to be healthy, indicated by strong debt service coverage ratio (DSCR) through the 18-year tenure of the NCDs (at CRISIL Ratings-sensitised projections done at P90 PLF). Furthermore, liquidity is supported by a debt service reserve account (DSRA) of six months of debt obligation without any recourse to project assets.

 

AGRG has a healthy business risk profile on account of diversity of location and counterparties within its portfolio. It also has strong revenue visibility owing to 25-year power purchase agreements (PPAs) at fixed tariffs with more than 8 counterparties.

 

Strong revenue visibility and low offtake risk

All 930 MW projects within AGRG SPVs have 25-year PPAs with more than 8 counterparties. Moreover, 57% of capacity has central counterparties such as Solar Energy Corporation of India and National Thermal Power Corporation. All projects have warranty for solar modules against manufacturing defects for 10 years.

 

The PPAs have fixed tariff throughout their tenure of 25 years from start of commercial operations ranging from Rs 4.4/ kilo watt hour (kWh) to Rs 6.0/ kWh. This lends high revenue visibility and stability to cash flow with low demand risk.

 

Payment track record across projects has been healthy, with the payment cycle largely in line with the PPA terms in the past few years.

 

Co-obligor structure of SPVs provides diversity benefit

All projects within one SPV are co-obligors for projects in the other two SPVs. The group having 28 projects has diversity with presence in 8 states and PPAs with more than 8 counterparties. With the presence of this co-obligor structure, surplus cash flows after debt servicing in any SPV will be available to fund the shortfall in other SPVs, thus supporting the consolidated DSCR. Additionally, as part of structure conditions, SPVs have undertaken in the corporate guarantee documents, that if there is any distributable surplus amount in any SPV, then it shall first be utilised to make good any shortfall in debt servicing or maintenance of reserves in other SPVs before distribution to Adani Green Energy group or any other Adani group entities.

 

AGRG is separated from the rest of the Adani Green Energy group. This is because all payments and distributions to Adani Green Energy group from AGRG can happen only after satisfaction of restricted payment conditions. This separation is further strengthened by conditions such as all AGRG SPVs to have 2 independent directors who will have a veto for any voluntary solvency declaration and any loans from Adani group entities to AGRG SPVs to be subordinate to senior secured debt and not to have rights to declare solvency and default during the tenure of their facilities.

 

Restricted payment and cash trap conditions

Restricted payment conditions, which are part of structure conditions provide extra liquidity in response to any stress in performance of AGRG SPVs from operations, receivables, or adverse forex movement. Three key restricted payment conditions (for any distributions/ payments to rest of Adani Green Energy group), which are part of structure are for project life coverage ratio (PLCR) to be above 1.6, DSCR to be above 1.35 and fund from operations to net debt (FFO/ Net Debt) above 6%.

 

PLCR covenant is a forward-looking ratio wherein discounted value of projected future earnings before interest tax depreciation and amortisation (EBITDA) is evaluated against outstanding debt. Future cash flow projection will be based on latest available resource assessment report, which would be done as per fixed methodology from consultants. This will address any downside to assumption of repowering and arresting of degradation. Moreover, if there is any permanent loss in generation capability reflected in reduction of PLCR below 1.6, then it is expected that surplus cash after debt servicing will be used for debt reduction at the earliest available opportunity as per stated policy. Non-adherence to these conditions and covenants shall be a rating sensitivity factor.

 

Weakness:

Exposure to inherent risks associated with renewable energy generation

The PLF for solar power projects is exposed to variability in climatic conditions and equipment and evacuation related risks. Given that the sensitivity of cash flow of a solar power project is highest for PLF, these risks could severely impair debt-servicing and free cash flows of such projects.

 

The group has undergone a yield reassessment and there has been revision in the P90 PLFs. The weighted average performance of the projects stood at 23.26%, which was above the revised P90 of 22.93% for fiscal 2023. PLF performance was above P90 levels in trailing twelve months ending January 2024. The group also undertakes additional repowering on an ongoing basis for maintaining the operational performance and avoiding any degradation losses in future as per the terms of the financing agreements. CRISIL Ratings will continue to monitor the PLF and adequacy of cash for debt servicing of the SPVs.

Liquidity: Strong

AGRG has maintained DSRA equivalent to 2 quarters of debt servicing equivalent to Rs 290 crore as on January 31, 2024, in the form of fixed deposits.

 

AGRG SPVs are expected to have strong liquidity driven by cash flow for debt servicing of close to Rs 770 crore in fiscal 2025. The SPVs are expected to have debt servicing requirements of less than Rs 500 crore in fiscal 2025.

Outlook: Stable

CRISIL Ratings believes that the ratings will continue to benefit from the sustained performance and long-term PPAs of AGRG projects.

Rating Sensitivity Factors

Upward Factors

• Sustained performance of overall portfolio better than P90 PLF.
• Faster-than-expected deleveraging to average DSCR of more than 1.45 at P90 PLF at CRISIL Ratings sensitised projections.

 

Downward Factors

• Sustained lower-than-anticipated performance or stretch in payment cycle to more than 100 days or adverse movements in hedging cost.
• Non-adherence to the conditions of the structure such as information covenants, repowering and hedging and PLCR.

Unsupported ratings  - CRISIL AA+

Unsupported rating disclosure for ratings without ‘CE’ suffix, where the instruments are backed by specified support considerations, is in compliance with SEBI’s circular dated September 22, 2022.

Key drivers for unsupported ratings

CRISIL Ratings has combined the business and financial risk profiles of all SPVs under AGRG (together referred as the group) and has equated the ratings with that of the group. This is driven by expected high fungibility of cash flows across all SPVs and timely support to all SPVs at the time of distress for any debt repayments. The Management’s intention to have high fungibility is also supported by cross guarantees across the SPVs, presence of TRA waterfall mechanism, mandatory cash sweeps/ traps, cross default clauses and other financial covenants. Consequently, unsupported and supported ratings, with the cross guarantees, stand at the same level and are equated to that of the group.

About the Company

AGRG has solar power projects of 930 MW. It comprises of 3 SPVs of Adani Green Energy Ltd namely PDPL, PSEPL and AGEUP. PDPL, PSEPL and AGEUP have 220 MW, 420 MW and 290 MW operational solar power projects, respectively.

Key Financial Indicators - AGRG (Consolidated; CRISIL adjusted numbers)

As on/for the period ended March 31	Unit	2023	2022
Revenue#	Rs crore	904	914
Profit After Tax (PAT)	Rs crore	40	-1
PAT Margin	%	4.4	-0.1
Adjusted debt/adjusted networth	Times	5.1	10.6
Interest coverage*	Times	1.6	1.6

#Revenue from operations only considered

*Interest on senior debt is considered

Any other information:

Key terms of bank loan

Key term	Description
DSRA	2 quarter DSRA in the form of cash/ fixed deposit (FD)
Restricted payment conditions	Dividends on equity share capital or interest on any unsecured loan/ quasi-equity from the promoter to be paid only on satisfaction of below conditions: In compliance of its obligations to pay interest and/or instalments and/or other monies due to lenders DSRA has been created and topped up as per stipulation Financial covenants stipulated are complied with No event of default has occurred or subsisting Security is created and perfected Distribution subject to covenants prescribed
Interest rate reset	Any downgrade in the Base Case Credit Rating will result in Reset Spread as follows: Increase in spread by 25 basis points (bps) if the Base Case Credit Rating changes from ‘AA’ to ‘AA-‘; and Increase in spread by 50 bps for each notch Credit Rating downgrade from ‘AA-’.

 

Key terms of NCD

Key term	Description
DSRA	2 quarter DSRA in the form of cash/ FD
Restricted payment conditions	Dividends on equity share capital or interest on any unsecured loan/ quasi-equity from the promoter to be paid only on satisfaction of below conditions: In compliance of its obligations to pay interest and/or instalments and/or other monies due to lenders DSRA has been created and topped up as per stipulation Financial covenants stipulated are complied with No event of default has occurred or subsisting Distribution subject to covenants prescribed
Spread reset	Any downgrade in the Base Case Credit Rating will result in Reset Spread as follows: Increase in spread by .50 bps if the Base Case Credit Rating changes from ‘AA’ to ‘A+’; and Increase in spread by .25% bps for each notch Credit Rating downgrade from ‘A+ to A-’.

 

Key definitions

PLCR: EBITDA forecast (on an aggregate basis) for the life of the PPAs and any residual cash or cash equivalent at period N present valued at the weighted average lifecycle cost of Senior Debt outstanding on the Relevant Calculation Date divided by the Senior Debt. The EBITDA forecast for the purpose of the Project Life Cover Ratio will be based on P-90 capacity utilisation factor (CUF) as forecast in the most recent independent consultant report.

 

FFO: Means EBITDA minus cash taxes paid and adjusted for any positive or negative adjustments in working capital minus cash net interest.

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity levels	Rating assigned with outlook
NA	Rupee term loan	May-2019	NA	Mar 2034	95	NA	CRISIL AA+/Stable
INE155V07017	Non-convertible debentures	03-Feb-2022	6.82%	31-Dec-2024	23.6	Complex	CRISIL AA+/Stable
INE155V07025	Non-convertible debentures	03-Feb-2022	7.30%	31-Dec-2026	19.8	Complex	CRISIL AA+/Stable
INE155V07033	Non-convertible debentures	03-Feb-2022	7.65%	31-Dec-2029	30.1	Complex	CRISIL AA+/Stable
INE155V07041	Non-convertible debentures	03-Feb-2022	7.75%	31-Dec-2031	20.1	Complex	CRISIL AA+/Stable
INE155V07058	Non-convertible debentures	03-Feb-2022	7.85%	31-Mar-2034	13.6	Complex	CRISIL AA+/Stable

 

Annexure - Details of Rating Withdrawn

ISIN	Name of Instrument	Date of Allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Ratings Assigned with outlook
NA	Non-convertible debentures*	NA	NA	NA	284	Complex	Withdrawn

*Not yet issued

Annexure - List of Entities Consolidated

Name of company	Extent of consolidation	Rationale for consolidation
Prayatna Developers Pvt Ltd	Full	Co-obligor structure with cash flow fungibility
Parampujya Solar Energy Pvt Ltd	Full	Co-obligor structure with cash flow fungibility
Adani Green Energy (UP) Pvt Ltd	Full	Co-obligor structure with cash flow fungibility

All Entities above are part of a homogeneous group.