Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the non-convertible debentures (NCDs) of Anzen India Energy Yield Plus Trust (Anzen InvIT) at ‘CRISIL AAA/Stable'.

 

Anzen is an Infrastructure investment trust (InvIT) sponsored by Sekura Energy Pvt Ltd (SEPL), which holds 15% of its units. Anzen has utilised the proceeds from the issue to acquire two interstate transmission systems (ISTS) namely Darbhanga-Motihari Transmission Company Limited (DMTCL) and NRSS XXXI (B) Transmission Limited (NRSS) from Edelweiss Infrastructure Yield Plus Fund (EIYP), to repay part of debt at SPV level and for other general corporate purposes. Anzen InvIT has issued NCDs of Rs 750 crore to refinance the remaining portion of the debt in the SPVs.

 

The rating reflects the stable revenue profile of Anzen InvIT, with the underlying transmission SPVs under the point of connection (PoC) mechanism. This, along with the healthy track record of the SPVs of maintaining line availability (FY23: DMTCL 99.96%, NRSS 99.98%; FY22: DMTCL 99.98%, NRSS 99.94%) at higher than normative levels over the past 6 years and remaining concession period of another ~29 years of the transmission service agreements (TSAs), ensures steady cash flows over the tenure of the debt. Healthy DSCR and adequate DSRA resulting in strong financial risk profile of the InvIT.

 

In FY2023, the SPVs reported higher topline of Rs 362 crore (DMTCL Rs 221 crore, NRSS Rs 141 crore) as against CRISIL Ratings estimated topline of ~Rs 233 crore (DMTCL Rs 135 crore, NRSS Rs 98 crore) mainly on account of certain accrued revenues of ~Rs 120 crore (DMTCL Rs 81 crore, NRSS Rs 39 crore) recognised in FY2023. Accrued revenues are on account of an order by Central Electricity Regulation Commission (CERC) dated May 13, 2022, allowing certain incremental tariff in respect of Interest During Construction (IDC) and cost overruns for both the SPVs totalling ~Rs 24 cr per annum (DMTCL Rs 16 cr and NRSS Rs 8 cr) from COD resulting in accrued revenues of Rs 120 crore as of FY2023. These accrued revenues will continue to be realised along with monthly tariffs from POC pools.

 

With assets under management (AUM) of both SPVs valued at Rs 2,319 crore as on May 25, 2023, the net debt to AUM ratio is at ~28%, well within the 49% stipulated by the Securities and Exchange Board of India (SEBI). Debt service reserve account (DSRA) for one quarter of debt obligations on a consolidated basis offers an additional buffer.

 

The InvIT also has a right of first offer (ROFO) for EIYP/SEPL’s stake in 12 operational solar assets. The solar assets are spread across India and have a combined capacity of around 813 megawatts (direct current).. The final details of the acquisition and the impact on the credit risk profile of Anzen InvIT will be key monitorables.

 

The strengths are partially offset by exposure to operations and maintenance (O&M) risk for the underlying transmission assets and impact of proposed acquisition of the solar assets.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Anzen InvIT and its SPVs as the former has direct control over the SPVs and will support them during exigencies. Furthermore, the SPVs will have to mandatorily dispense 90% of their net distributable cash flow (after meeting their debt obligation) to the InvIT, leading to highly fungible cash flow. Also, as per extant regulations, the cap on borrowing of an InvIT has been defined at a consolidated level (equivalent to 49%[1] of the value of the InvIT assets).

 

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

 

¹Can increase to 70% post six continuous dividend distributions and maintenance of ‘AAA’ credit rating.

Key Rating Drivers & Detailed Description

Strengths:

• Stable revenue of underlying operational assets: The two underlying SPVs have a track record of above-normative transmission line availability of around six years. Their TSAs ensure payment of stipulated tariff subject to achievement of normative line availability of 98%.

 

The revenue of a transmission SPV is completely delinked from the power demand-supply situation and volatility in electricity prices. Moreover, factors affecting line availability—such as unchecked vegetation growth, lightning or high ambient temperature causing wear and tear of insulators and flashovers—are routine. These events do not entail significant cost and can be easily rectified, thus minimising outage time. Any outage on account of extreme weather conditions, cyclones or excessive lightning is usually classified as an act of God and is covered under the force majeure clause of the TSA. Hence, such an outage has no impact on line availability.

 

• Cash flow stability under the PoC pool mechanism: Both SPVs are interstate transmission system (ISTS) licensees and come under the PoC pool mechanism, wherein the central transmission utility (CTU) collects monthly transmission charges from all designated ISTS customers on behalf of the licensees. All ISTS licensees are then paid their share of transmission charges from the centrally collected pool. This method mitigates counterparty risk as the risk of default or delay in payment from a customer is proportionately distributed among all ISTS licensees. Though most customers (power distribution companies) are weak counterparties, the CTU has maintained strong collection efficiency. The SPVs will continue to benefit from the strong collection efficiency of the CTU and diversification of counterparty risk under the PoC pool mechanism.

 

• Expectation of a strong financial risk profile: The trust is likely to have strong and stable cash flow over the medium term aided by long-term TSAs of its underlying SPVs and the sound collection efficiency under the PoC mechanism. The listing proceeds have been utilised to repay the external debt in the SPVs. The trust has also raised external debt to refinance the debt in the SPVs and accrues interest on the same.

 

The external debt has large bullet payments over the next 3-5 years; however, the long life of underlying assets is expected to support refinancing at favourable terms, as indicated by the strong project life cycle ratio. Acquisitions, including the ROFO assets by Anzen InvIT, and their impact on the financial risk profile of the InvIT, will be key monitorables.

 

Weakness:

• Exposure to O&M risks for SPVs: Maintenance of high line availability is critical to ensure stability of revenue in the power transmission sector. Although the O&M expense forms a small portion of revenue, improper line maintenance may lead to revenue loss and weaken the loan repayment capability of the SPVs. However, these risks are mitigated by low technical complexity and O&M being a routine activity.

Liquidity: Superior

Stable revenue and strong cash accrual will ensure a healthy DSCR over the debt tenure and comfortably cover the debt obligation over the medium term. Moreover, the long life of underlying assets, exceeding the debt tenure, should help in refinancing the bullet repayment at favourable terms. Maintenance of a three-month DSRA supports liquidity.

Outlook: Stable

CRISIL Ratings believes Anzen InvIT will generate stable cash flow, backed by the ability of its transmission assets to maintain the stipulated line availability and implementation of the PoC pool mechanism for billing and collection.

Rating Sensitivity factors

Downward factors:

• Drop in line availability below 98% on a sustained basis, weakening the cash flow
• Delay in collection under the PoC mechanism

 

Key monitorable:

Given the nature of the InvIT platform, the trust will acquire new assets going forward. The quality of assets, funding of acquisitions and their impact on its credit risk profile will be key monitorables.

About the trust

Anzen InvIT was formed as an irrevocable trust pursuant to the trust deed under the provisions of the Indian Trusts Act, 1882, and got registered with SEBI as an InvIT on January 18, 2022, under Regulation 3(1) of the InvIT Regulations.

 

Anzen is an Infrastructure investment trust (InvIT) sponsored by Sekura Energy Pvt Ltd (SEPL), a wholly owned portfolio company of Edelweiss Infrastructure Yield Plus (EIYP). Edelweiss Real Assets Managers Ltd which is a subsidiary of Edelweiss Alternative Asset Advisors Limited (EAAA; ‘CRISIL AA-/Negative’) is the investment manager of the InvIT. Anzen’s units got listed in November 2022, the present unitholding is such that SEPL owns 15% while EIYP owns ~59% while other unitholders hold the remaining ~26%.

 

Anzen has utilised the proceeds from the issue to acquire two interstate transmission systems (ISTS) namely Darbhanga-Motihari Transmission Company Limited (DMTCL) and NRSS XXXI (B) Transmission Limited (NRSS) from EIYP and to repay part of debt at SPV level.

 

Anzen InvIT has issued NCDs of Rs 750 crore to refinance the remaining portion of the debt in the SPVs. Anzen has replaced the external debt at the SPVs with interest bearing debt from itself. As the SPVs are 100% controlled by Anzen, the cashflows at the SPV level are upstreamed to Anzen at regular intervals in the form of repayment of principal and interest on the debt. 

 

The InvIT has made 4 distributions to the unitholders since its inception in November 2022.

 

The trust has acquired two transmission SPVs. Details of the SPVs are as below:

SPV	About the project
Darbhanga Motihari Transmission Co Ltd (DMTL)	DMTL is responsible for design, engineering, supply, erection, commissioning and O&M of transmission lines (400-kV D/C Muzaffarpur – Darbhanga and LILO of both circuits of 400-kV D/C Barh – Gorakhpur transmission line at Motihari) and associated substations at Darbhanga and Motihari in Bihar. The project was commissioned in August 2017. The TSA was signed on August 6, 2013, for 35 years from commissioning.
NRSS XXXI (B) Transmission Limited (NRSS)	NRSS is responsible for the design, engineering, supply, erection, commissioning and O&M of two 400 kV double circuit transmission lines (one from Kurukshetra to Malerkotla with an approximate length of 139 km, and another one from Malerkotla to Amritsar, with an approximate length of 149 km). The project was commissioned in March 2017. The TSA was signed on April 7, 2017, for 35 years from commissioning.

 

About the sponsor

SEPL is a wholly owned portfolio company of EIYP Fund, whose investment manager is Edelweiss Alternative Asset Advisors Ltd. EIYP is a SEBI-registered Category I alternative investment fund (AIF), which invests in sectors such as power transmission, renewables, roads and highways and other infrastructure.

Key Financial Indicators

Particulars	Unit	2023	2022*
Months		5	12
Revenue	Rs.Crore	94	NA
Profit After Tax (PAT)	Rs.Crore	-32	NA
PAT Margin	%	-34.1	NA
Adjusted debt/adjusted networth	Times	0.49	NA

*Anzen commenced operations in November 2022

Any other information: Not Applicable