Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the Rs.61 crore non-convertible debentures of Canal Solar Energy Private Limited (CSEPL).

 

SAEL along with these 4 companies, namely CSEPL, Laxjeet Renewable Energy Private Limited (LREPL), Sunfree Paschim Renewable Energy Private Limited (SPREPL) and Universal Biomass Energy Private Limited (UBEPL) is a restricted group (RG) of co-obligors consisting of 205 MW solar assets and 60.5 MW waste to energy assets. This RG is called SAEL RG. SAEL RG has exclusive access to cash flows of these solar and waste to energy assets.

 

The rating reflects low offtake risk, diversification benefits with assets spread across locations, counterparties and technology and above average financial risk profile supported by financial flexibility from covenants. These strengths are partially offset by exposure to risks inherent in operating solar energy assets and limited track record of WTE plant’s technology.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of SAEL and four companies in the restricted group (CSEPL, LREPL, SPREPL and UBEPL) and equated the rating of the individual SPVs to that of the group. SAEL and these 4 companies include 12 renewable energy projects in total. The entities are in a homogeneous group as the entities have common management, treasury team and are in the same business of operating power assets in India.

 

SAEL RG together has raised Rs. 1265 crore NCDS (maximum permissible limit of Rs. 1350 crore), which have been used to refinance the existing debt facilities under the RG earlier. As per the financing agreement, cross- guarantees has been issued among all 5 Issuers of SAEL RG. Also, all projects within each SPV are co-obligors for projects in the other four SPVs. Additionally, financing agreements support usage of cash flows in each SPV or project in SAEL RG for debt servicing in other entities of the group. As per the final terms of the financing agreements shared to CRISIL, the agriculture business, non-RG WTE project, module assembly/manufacturing business and rice processing have been separated (including their cash flows, liabilities etc) from SAEL RG.  The cash flows and liabilities of these businesses are thus not consolidated for the assessment of the instrument of SAEL RG.

 

The restricted group is separated and ring-fenced from other businesses of SAEL group (including agriculture related business). However, the warehousing business will remain in SAEL, but neither debt nor working capital debt is present in this business. CRISIL has not included cash flows from warehouse business under SAEL RG’s analysis.

 

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:

Strong revenue visibility

The entire capacity of 266 MW of SAEL RG comprises of 12 projects (8 solar and 4 WTE) and is tied up through long-term PPAs at pre-determined tariffs. Around 50% of the overall portfolio (by capacity) is tied up with Uttar Pradesh Power Corporation Limited (UPPCL) at tariffs ranging from Rs. 3.2-7.0/unit, while 26% of capacity is tied up with Punjab State Power Corporation Limited (PSPCL) for 20 years at a tariff ranging from Rs. 4.8-8.7/unit. The balance capacity is Solar Energy Corporation of India (SECI), Maharashtra State Electricity Distribution Company Limited (MSEDCL), Chamundeshwari Electricity Supply Corporation, Mysore (CESC, Mysore) and Haryana Discoms for a period of 25 years with tariff ranging from Rs. 3.3-5.5/unit.

 

The long-term PPAs support 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 with average payment track ranging from 20-26 days from date of billing, over past 3 years ending fiscal 2023 and trailing twelve months ending September 2023.

 

Diversified by cash flows from solar and WTE projects along with geographical spread of assets

Assets are diversified in location, counterparties and technology. The restricted group consists of 12 projects, 8 solar and 4 WTE projects. The assets in structure have diversity in generation technology having uncorrelated generation profile. Around 50-60% of cash flows are expected to be generated from WTE and remaining from solar assets. Moreover, these assets are spread across four states: Uttar Pradesh (50% of total capacity), Punjab (33%), Maharashtra (15%) and Karnataka (2%).  They have PPAs with six counterparties.

 

Above average financial risk profile, supported by financial flexibility from covenants

The financial risk profile is expected to be above average, marked by healthy DSCR through the tenure of ten-year NCDs (at CRISIL Ratings sensitised projections) with a put and call option at the end of fifth year. The DSCRs are also likely to be healthy through the remaining life of the asset, post refinancing stemming from remaining asset and PPA life. Furthermore, liquidity is supported by debt service reserve account (DSRA) of six months of debt obligation in the form of cash or bank guarantee.

 

Financial risk profile is also supported by mandatory cash sweep (MCS) payments specified in the final terms. As per the waterfall mechanism, post the payment of statutory dues, operations and maintenance expenses, employee costs and other expenses, all the surplus cash will be used to make MCS payments which will help reduce the final bullet.

 

Weaknesses:

Limited track record of waste to energy plant’s technology and exposure to raw material availability

WTE plants have comparatively limited track record of operations in India, and globally, compared to other power generation technologies. That said, 61 MW of WTE assets (restricted group total capacity: 266 MW AC which includes solar and WTE) in the group have operational history of over 3 years and 1 plant has operational history of over 10 years. Comfort can also be driven from tie-ups and equipment usage of marquee global providers including BWE Denmark, Thyssen Group, Siemens and BHEL.

 

Cash flows from WTE plants also remains sensitive to availability and prices of raw material that is paddy straw. In the past, SAEL has been sourcing fuel (paddy straw) from the farmers present in the close vicinity of power plants, limiting high variability in fuel costs and availability risk. Additionally, environmental benefit of consumption/ burning of paddy straw in WTE plants and operational linkages of operations with overall operational of SAEL group are expected to limit variations in prices and availability.

 

Exposure to stabilisation risks

The group is facing stabilization risk for 32 MW solar projects and under-construction WTE projects of 10 MW as of December 2023. However, the risk is mitigated by its demonstrated track record of project execution and the quality of suppliers for the WTE project. Additionally, if the 10 MW WTE project is not commissioned over medium term, then it is expected to be moved out of SAEL RG and maximum NCD amount on SAEL RG will be reduced by Rs 50 crores.

Liquidity: Strong

Liquidity is driven by expected earnings before interest and depreciation of around Rs 309 crore in fiscal 2024 at P90 level of generation against debt obligation of around Rs 150 crore. DSRA of six months (of debt obligations) has been created in the restricted group.

Outlook: Stable

The SPVs in RG are expected to benefit from steady cash flows backed by long-term PPAs and stable operational performance.

Rating Sensitivity Factors

Upward Factors

• Faster than expected deleveraging leading to improvement in average DSCR over remaining debt tenor along with sustenance of operational performance.
• Stabilisation of under-construction capacity, sustenance in generation above P75 levels and payment track record

 

Downward Factors

• Weaker than expected performance in WTE and/ or solar assets (P90 PLFs for solar and 80% in waste to energy assets on an annualised basis).
• Significant delay in payments by counterparties resulting in build-up of receivables of more than 40 days along with higher than budgeted O&M expenses as per the financing agreements.

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 SAEL RG (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

SAEL Ltd was incorporated as a private limited company which is primarily engaged waste to energy power generation (165.6 MW) and solar power generation (2321 MW) and warehousing. The SAEL RG SPVs include CSEPL, LREPL, SPREPL and UBEPL consisting of wate to energy projects of 60.5 MW and solar energy projects of 206 MW.

Key Financial Indicators – SAEL Limited-restricted group*

As on/for the period ended March 31	Unit	2023	2022	2021
Revenue from operations	Rs crore	410	376	361
Profit after tax	Rs crore	-86	15	-5
PAT Margins	%	NM	4	-1
Adjusted debt/adjusted networth	Times	4.5	2.1	2.5
Interest coverage	Times	2.1	3.6	3.1

*Financial numbers include all 12 projects.