| Avaada Solarise Energy Private Limited | ||||
| Converted from Provisional Ratings to Final Rating | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has converted its provisional rating assigned to the Rs 499 crore non-convertible debentures (NCDs) and bank loan facility of Avaada Solarise Energy Pvt Ltd (ASEPL, part of the Avaada restricted group [ARG]) into a final rating of ‘CRISIL AAA/Stable’.
ARG includes four operational special-purpose vehicles (SPVs): CSEPL, Fermi Solarfarms Pvt Ltd (FSPL), Avaada SataraMH Pvt Ltd (ASMHPL) and Avaada Solarise Energy Pvt Ltd. The SPVs are wholly owned subsidiaries (except ASMHPL) of Avaada Energy Pvt Ltd (AEPL), which is the main holding entity for all solar assets under the Avaada group. ASMHPL is held 74% by AEPL and 26% by group captive consumers. ARG has raised Rs 1,440 crore, which will be used to refinance the existing debt and for other corporate purposes (including the issue-related expenses).
CRISIL Ratings has now received the final executed documents for this transaction. These executed documents are in line with terms of the transaction when provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating to a final rating.
The rating reflects strong revenue visibility, low offtake risk (with entire capacity of 555.25 megawatt-peak [MWp] tied up), diversification benefits enjoyed by ARG with assets spread across three states and multiple counterparties, and low tariff risk with entire capacity tied up through long-term power purchase agreements (PPAs) at fixed tariffs. The rating also factors in the healthy financial risk profile, supported by a healthy debt service coverage ratio (DSCR), upfront creation of a debt service reserve account (DSRA) balance equivalent to nine months of debt obligation, and presence of restrictive covenants. These strengths are partially offset by exposure to risks inherent in operating solar energy assets and to refinancing risk (given the balloon payment structure of the NCD). |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of the four SPVs in ARG in line with its criteria for rating entities in homogeneous groups and equated the rating of the individual SPVs to the group. The entities are in a homogeneous group as they have a common promoter, AEPL, which owns 100% stake in all SPVs, except for ASMHPL (26% held by group captive customers and rest by AEPL, as required by the group captive regulations). The entities have common management and treasury team and are in the same business. All the entities are critical to ARG. Each SPV acts as a co-obligor to the others, with each giving corporate guarantee to the debt obligations of all other SPVs and there being a cross default clause that implies that default on any condition in any one SPV leads to default in all other SPVs. Cash flow generated at each SPV is available for use across the restricted group. Any deviation in this understanding will be a key rating sensitivity factor.
Please refer Annexure: List of entities consolidated, which highlights the entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Strong revenue visibility and counterparty profile The entire capacity of 555.25 MWp of ARG is tied up through long-term PPAs at fixed pre-determined tariffs. Around 45% of the overall portfolio (by capacity) has 25-year PPAs with Solar Energy Corporation of India (SECI) at tariffs of Rs 2.62/unit (for 140 MWp) and Rs 4.43/unit (for 108 MWp), while 210 MWp (38% of capacity) is tied up with Bangalore Electricity Supply Company Ltd (BESCOM; a Karnataka state discom [distribution company]) for 25 years at a tariff of Rs 2.92/unit. The balance capacity is tied up with four commercial and industrial (C&I) customers with strong credit risk profiles for 17 years (capacity weighted average) with lock-in period of 15 years at a tariff of Rs 3.73/unit (capacity weighted average).
The long-term PPAs provide revenue visibility and stability to cash flows. Payment track record across the projects has been healthy, with payment cycle largely in line with the PPA terms in the past few years, despite presence of a state discom (BESCOM) among the counterparties. Additionally, projects have been operational for over two years (capacity weighted average) and have a satisfactory performance track record, with above P90 plant load factor (PLF) performance (on aggregate basis) over the past two fiscals (only projects operational for full fiscal considered).
Going forward, CRISIL Ratings expects the payment cycle to remain stable while PLF levels to remain at P-90 level or better. However, any significant build-up of receivables or continuous underperformance in the PLF will remain a key rating sensitivity factor.
Diversified geographical spread of assets with co-obligor structure of SPVs providing diversity benefit The assets are spread across Karnataka (38% of total capacity), Maharashtra (37%) and Rajasthan (25%). The projects in Karnataka and Rajasthan are in solar parks with a record of healthy irradiation levels.
All projects within each SPV are co-obligors for projects in the other three SPVs. Furthermore, cash flow generated at each SPV will be available for use across the restricted group, thus supporting the consolidated DSCR. Additionally, as part of structure conditions, the SPVs have undertaken that any distributable surplus in any SPV will first be utilised to make good any shortfall in meeting expenses, debt servicing or maintenance of reserves in other SPVs before distribution to the sponsors.
Healthy financial risk profile The financial risk profile should remain healthy marked by strong average DSCR through the tenure of the three-year NCDs (at CRISIL Ratings sensitised projections). The DSCRs are also likely to be healthy through the remaining life of the asset after refinancing. Furthermore, liquidity for the NCDs shall be supported through DSRA equivalent to nine months of debt obligation in the form of cash or bank guarantee without any recourse to project assets.
Financial risk profile is also supported by a cash sweep covenant which specifies that if the DSCR falls below 1.45 times in the trailing 12 months (tested every six months), the entire surplus shall be swept and used for debt prepayment. The proposed NCDs will be secured by project assets.
Weaknesses: Exposure to refinancing risk The SPVs in ARG are exposed to the risk of refinancing bullet of around Rs 1,253.4 crore at the end of three-year tenor of the NCDs. That said, the healthy business risk profile of the underlying assets and robust blended DSCRs over the available useful life of projects, extending to around 17 years (on capacity weighted basis), mitigate risks to an extent, with respect to refinancing. Moreover, as per the management, the refinancing plan will be initiated six months before the bullet at the end of the third year, thereby providing reasonable cushion in terms of the timelines.
Exposure to risks inherent in operating solar energy assets The performance of solar power plants depends on irradiation levels around the plant's location and annual degradation in solar panels. Given that cash flow is highly sensitive to PLFs in solar power assets, these risks could severely impair debt servicing and free cash flow. CRISIL Ratings will continue to monitor PLF levels as a key rating sensitivity factor. |
Liquidity: Superior Liquidity is driven by expected earnings before interest and depreciation of around Rs 250 crore in fiscal 2023 at P90 level of generation, against debt obligation of around Rs 153 crore. The SPVs will also have DSRA of nine months (of debt obligation) to cover any cash flow mismatches, which will be created upfront from NCD proceeds. Additionally, there is no planned capital expenditure, except as required in the normal course of business for plant upkeep. |
Outlook: Stable The SPVs in ARG are expected to benefit from steady cash flows backed by long-term PPAs and stable operational performance. |
Rating Sensitivity factors Downward factors
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About the Company ASEPL is a 100% subsidiary of AEPL. It has a 210 MWp solar power plant commissioned in 2019 in the Pavagada solar park in Karnataka. It has signed a PPA for 25 years with BESCOM at a tariff of Rs 2.92/unit. |
Key Financial Indicators– ASEPL – CRISIL Ratings-adjusted numbers
^Interest free loans from promoter and related parties treated as neither debt nor equity. *projects under the company were fully operationalised starting November 27, 2019 |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 02-Mar-22 in line with the lender-wise facility details as on 02-Feb-22 received from the rated entity.
Criteria Details
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