Detailed Rationale

CRISIL Ratings has assigned its 'Provisional CRISIL AAA/Stable' rating to the non-convertible debentures of Anzen India Energy Yield Plus Trust (Anzen InvIT). The rating on the long-term bank facility has been reaffirmed at ‘Provisional CRISIL AAA/Stable’

 

Anzen InvIT is sponsored by Sekura Energy Pvt Ltd (SEPL), a wholly owned portfolio company of Edelweiss Infrastructure Yield Plus (EIYP). The InvIT will acquire 100% stake each in two operational tariff-based competitive bidding interstate power transmission assets from EIYP. The trust has been registered with the Securities and Exchange Board of India (SEBI) and has filed its Placement Memorandum in November 2022. SEPL will have at least 15% stake in the InvIT, while EIYP, its affiliates and public unitholders will hold the remaining. The proceeds from the listing will be used to acquire the assets and repay a part of the debt. Edelweiss Real Assets Managers Ltd (ERAML) will act as the investment manager of the InvIT.

 

The trust is expected to contract external debt of Rs 750 crore to refinance the debt in the special-purpose vehicles (SPVs). Healthy consolidated cash flow will ensure a strong debt service coverage ratio (DSCR). With assets under management (AUM) of both SPVs valued at Rs 2,280 crore as on June 30, 2022, the net debt to AUM ratio is expected to lie within 49%, as stipulated by SEBI. Furthermore, the creation of a debt service reserve account (DSRA) for at least one quarter of debt obligation on a consolidated basis will offer an additional buffer.

 

The InvIT will have a right of first offer (ROFO) for EIYP/SEPL’s stake in 12 operational solar assets and plans to acquire these over 1-2 years. The ROFO will be available from such date which is six months from the trust listing date until December 31, 2027. These assets are spread across India and have a combined capacity of around 813 MWDC. The management will exercise financial prudence while acquiring these assets. The final details of the acquisition and the impact on the credit risk profile of Anzen InvIT will be a key monitorable.

 

The rating reflects the stable revenue profile of the trust, with the underlying transmission SPVs to be acquired under the point of connection (PoC) mechanism. This, along with the healthy track record of SPVs of maintaining line availability at higher than normative levels and 35-year TSAs, ensures steady cash flow. The rating also reflects the strong financial risk profile of the InvIT. These strengths are partially offset by exposure to operations and maintenance (O&M) risk for the underlying transmission assets.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Anzen InvIT and the SPVs it plans to acquire as the former will have direct control over the latter, and will also support them during exigencies. Furthermore, the SPVs will have to mandatorily dispense 90% of their net distributable cash flow (after meeting the 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.

[1]Can 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 SPVs to be acquired have maintained a track record of above-normative transmission line availability of around five years. Their TSAs ensure payment of stipulated tariff subject to achievement of normative line availability of 98%.

 
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. Hence, such an outage has no impact on line availability and is covered under the force majeure clause of the TSA.

Cash flow stability under the PoC pool mechanism

The SPVs to be acquired 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 aided by long-term TSAs of its underlying SPVs and the sound collection efficiency under the PoC mechanism. The listing proceeds will be utilised repay a part of the debt in the SPVs. The trust also plans to raise external debt to refinance the debt in the SPVs. However, this will be constrained by the debt cap of 49% of AUM, prescribed by SEBI.

 

The proposed debt would have large bullet payments over the next 3 to 5 years; however, the long life of underlying assets is expected to support refinancing at favourable terms, as indicated by a strong project life cycle ratio. Acquisitions going forward, including the ROFO assets by Anzen InvIT and their impact on its financial risk profile, 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 of 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 a key monitorable.

 

Additional disclosures for the provisional rating

The provisional rating will be converted into a final rating on:

• Listing of the InvIT and raising of proceeds
• Transfer of the proposed shareholding in asset SPVs to the InvIT

 

The provisional rating will be converted into a final rating after receipt of transaction documents duly executed within 90 days from the date of issuance of the instrument.

 

The final rating assigned post conversion shall be consistent with the available documents. If the duly executed transaction documents are not received within the timelines, the rating committee of CRISIL Ratings may grant an extension of up to another 90 days, in line with its policy on provisional ratings.

 

Rating that would have been assigned in the absence of the pending documentation

In the absence of pending documentation considered while assigning the provisional rating, CRISIL Ratings would not have assigned a rating.

 

Risks associated with the provisional rating

The 'Provisional' prefix indicates that the rating is contingent on occurrence of certain steps or execution of certain documents by the issuer, as applicable. If the documents received and/or completion of steps deviate significantly from the expectations, CRISIL Ratings may take appropriate action, including placing the rating on watch or changing the rating/outlook, depending on the status of progress on a case-to-case basis. In the absence of the pending steps or documentation, the rating on the instrument would not have been assigned ab initio.

About the Sponsor

SEPL is a wholly owned portfolio company of EIYP Fund, whose investment manager is Edelweiss Alternative Asset Advisors Ltd (EAAA; ‘CRISIL PPMLD AA-r/Negative’). 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	2022*	2021*
Revenue	Rs crore	NA	NA
Profit after tax (PAT)	Rs crore	NA	NA
PAT margin	%	NA	NA
Adjusted debt/adjusted networth	Times	NA	NA
Interest coverage	Times	NA	NA

*The trust is yet to commence operations

Any other information:

CRISIL Ratings has received an undertaking from Anzen InvIT stating that key assumptions pertaining to the portfolio assets, capital structure etc. shared with CRISIL Ratings are in consonance with the details filed by the sponsor with SEBI.

Annexure - Details of Instrument(s)*

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
NA	Proposed term loan	NA	NA	NA	750	NA	Provisional CRISIL AAA/Stable
NA	Non-convertible debentures*	NA	NA	NA	750	Complex	Provisional CRISIL AAA/Stable

*Yet to be issued