Detailed Rationale

CRISIL Ratings has upgraded the rating on the long-term loan facility of Continuum Green Energy (India) Private Limited (CGEIPL), availed for its 34.5-megawatt (MW) wind project in Surajbari (Kutch, Gujarat) to ‘CRISIL A/Stable’ from ‘CRISIL A-/Positive’. Also, CRISIL Ratings has assigned ‘CRISIL A-/Stable’ rating on the working capital facilities of CGEIPL (also the holding company of renewable assets of the Continuum group).

 

The upgrade in rating of the long-term facilities of Surajbari project reflects improvement in the asset’s plant load factor (PLF; 21% in fiscal 2022 from 17.9% in fiscal 2021; also generation rose ~20% year-on-year [y-o-y] during the first quarter of fiscal 2023), resulting in expectation of healthy debt service coverage ratio (DSCR) over the remaining tenure of the project loan, strong liquidity, and the stable receivables profile with entire capacity tied-up with robust and diversified counterparties. The rating continues to factor in the ring fencing of the project's receivables for term loan servicing. These strengths are partially offset by exposure to risks inherent in operating wind projects.

 

Further, the rating on the working capital facilities of CGEIPL factors in the healthy business risk profile of the group – which comprises an operational capacity of ~900 MW of wind and 96.3 megawatt-peak (MWp) of solar assets (of which 644.1 MW of wind and 78.8 MWp of solar assets are under the Continuum Restricted Group* [CRG] formed in 2021), that is likely to increase to ~1.1 gigawatt (GW) of wind and ~219 MWp of solar capacities by the third quarter of fiscal 2023, with the expected commissioning of under-construction assets – a robust counterparty mix and improved liquidity post refinancing of existing debt along with fund tie-up to meet the equity requirements for the next phase of expansion, through USD 400 million raised at a promoter level entity. These strengths are partially offset by the average financial risk profile, vulnerability to counterparty credit risk emanating from exposure to state utilities (Maharashtra State Electricity Distribution Company Ltd [MSEDCL] and MP Power Management Company Ltd [MPPMCL]), susceptibility to risks inherent in operating wind and solar power projects, and project execution.

 

*CRG includes Bothe Windfarm Development Pvt Ltd (BWDPL), DJ Energy Pvt Ltd (DJEPL), Uttar Urja Projects Pvt Ltd (UUPPL), Watsun Infrabuild Pvt Ltd (WIPL), Trinethra Wind and Hydro Power Pvt Ltd (TWHPPL) and Renewables Trinethra Pvt Ltd (RTPL) – all rated ‘CRISIL A+/Stable’.

Analytical Approach

For arriving at the rating on the working capital facilities, CRISIL Ratings has moderately consolidated the operational and under-development special purpose vehicles (SPVs) of CGEIPL to the extent of support required for these entities over the medium term. This is in line with CRISIL Ratings’ criteria of consolidation. Further, loans given by SPVs to CGEIPL is treated as neither debt nor equity while compulsorily convertible debentures from parent Continuum Green Energy Ltd (CGEL; Singapore based) are treated as equity. For arriving at the ratings on the long-term loan facility of the Surajbari project, CRISIL Ratings has used its criteria for rating wind power projects.

 

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:

• Surajbari project – Improved operational performance supporting healthy debt protection metrics and strong liquidity

PLFs grew to 21% in fiscal 2022 from 17.9% in fiscal 2021, with generation registering a growth of ~20% y-o-y in the first quarter of fiscal 2023. Despite weak generation in fiscal 2021, (below the P-90 level of 23.4%), company had used excess liquidity to prepay around Rs 5.5 crore of long-term loan in fiscal 2021. This has resulted in lowering of the overall tenure of existing term debt by a couple of quarters along with interest cost reduction. Consequently, the average DSCR for the project is expected to remain healthy over the remaining tenure of the loan, with PLFs expected to stabilise at P-90 levels. Further, as on June 30, 2022, the project had free cash and debt service reserve account (DSRA) balance of ~Rs 17.6 crore against debt obligations of ~Rs 13.4 crore due in fiscal 2023, indicating strong liquidity cover of more than 15 months.

 

• Surajbari project – Strong and diversified counterparties with comfortable payment cycle

Out of total project capacity of 34.5 MW, Phase 1 (16.5 MW) of the project has a 20-year power-purchase agreement (PPA) with Gujarat Urja Vikas Nigam Ltd (GUVNL), and Phase 2 capacity (18 MW) is tied-up with strong industrial counterparties. The average payment track record has consistently remained below 1 month in the past three years. The payment cycle is expected to remain stable going forward as well. Any weakening in the cycle will be a rating sensitivity factor.

 

• Healthy business risk profile along with improvement in counterparty mix

The business risk profile of CGEIPL is driven by equity and debentures held in its six operational SPVs, which are part of the CRG, (644.1 MW of wind and 78.8 MWp of solar capacities across Gujarat, Madhya Pradesh, Maharashtra and Tamil Nadu), Kutch Windfarm Development Pvt Ltd (KWDPL, 28 MW wind asset in Gujarat) and three partly commissioned Gujarat-based SPVs (which include Morjar Windfarm Development Pvt Ltd [148.5 MW wind asset, with 67.5 MW commissioned], Continuum Trinethra Renewables Pvt Ltd [99.9 MW wind and 140.0 MWp solar, with 37.8 MW of wind and 17.5 MWp of solar commissioned] and Continuum Power Trading (TN) Pvt Ltd [126 MW wind asset, with 88 MW commissioned).

 

The CRG structure provides diversification benefits and strong financial flexibility to absorb any delays from distribution companies (discoms) or weak operating performance. This significantly lowers the dependence of these companies on CGEIPL for funding support.

 

For projects other than CRG (436.9 MW of wind and 140 MWp of solar, including those nearing completion), the counterparty profile includes Solar Energy Corporation of India (SECI) and commercial and industrial (C&I) customers. This is expected to enhance the counterparty mix with share of weaker state utilities falling to 28.4% (from the current 37.1%), post commissioning of under-construction assets (expected by the third quarter of fiscal 2023). Further, implementation risk for under-construction assets is low as a part of these capacities are already operational with entire land and evacuation infrastructure in place, and equity and debt sanctions tied-up.

 

CGEIPL receives cash flow from these existing assets in the form of management fee, interest income on compulsorily/optionally convertible debentures, or inter-corporate deposits. The holding company has received surplus funds, post meeting restricted payment conditions as defined under financing agreements, from the SPVs under CRG and the Surajbari project over the past two fiscals.

 

• Improved financial flexibility post refinancing of existing non-convertible debentures (NCDs) and fund raise towards equity requirements for future projects

The company has fully refinanced existing NCDs of Rs 800 crore which were due in April 2026, using funds from an associate entity Continuum Energy Aura Pte Ltd (CEAPL), a Singapore-based 100% subsidiary of Continuum Green Energy Ltd (CGEL, also the parent entity of CGEIPL). CEAPL had raised USD 400 million through issuance of bonds, in July and August 2022.

 

These bonds are to be repaid through a single bullet at the end of their tenure in January 2026, with half-yearly interest servicing. Further, the management has indicated that they would maintain sufficient liquidity to cover interest payments over the near term, while the newer assets ramp-up generation.

 

In the long run, the proceeds of the CEAPL bond are expected to be utilised for equity infusion into the next leg of projects totaling ~1.2 GW (with first phase of ~822 MW, to be implemented over the next 12 to 15 months). However, as per management, funds will be drawn at CGEIPL level based on project progress. This along with other hedging mechanisms to be adopted is expected to mitigate the foreign exchange risk.

 

CRISIL Ratings believes surplus from existing projects (CRG and Surajbari) and under-construction assets as they ramp-up should be sufficient to cover the interest obligations for the CEAPL bond. As on June 30, 2022, CGEIPL had unencumbered cash of Rs 182 crore.

 

Weaknesses:

• Counterparty credit risk emanating from exposure to weak discoms

Around 37% of the operational portfolio (which shall reduce to 28.4% once the under-construction capacity is operational) is exposed to high counterparty credit risk, with significant delays seen in payments from the state discoms viz. MSEDCL and MPPMCL, post the COVID-19 pandemic. As on June 30, 2022, the total outstanding dues from MSEDCL (for BWDPL) stood at Rs 214 crore, which translates to receivables of 365 days (on trailing 12-month revenue) and that from MPPMCL (for DJEPL and UUPPL) stood at Rs 253 crore with receivables of ~450 days.

 

Going forward, however, MPPMCL has opted to liquidate outstanding dues along with late payment surcharge pertaining to generation upto March 2022, by paying equal monthly installments of ~Rs 4.6 per month over a 40-month period. As per the management, they have received the first installment in August 2022. Also, for generation beyond March 2022, MPPMCL is now expected to pay dues within timelines as per PPAs. It has received ~Rs 55 crore in August 2022 for generation in the months of April and May 2022. Further, MSEDCL has also paid ~Rs 88 crore in August 2022. While these have led to an improvement in receivables, any further stretch in the payment cycle from these two discoms is a key rating sensitivity factor.

 

• Exposure to risks inherent in operating wind-energy assets

Wind power generation is highly vulnerable to seasonality and variance in wind intensity. Given that cash flows are highly sensitive to PLFs of wind assets, these risks could severely impair debt-servicing and free cash flows of operational projects, in-turn impacting up-streaming of cash flow to CGEIPL.

 

The Surajbari project has an established track record of operations (over 8 years), having witnessed multiple full wind seasons. The project has consistently performed at a PLF of more than P-90 (23.4%) over fiscals 2016-2020. However, in fiscal 2021, PLF levels fell significantly to 17.9% due to the weak wind pattern and one-time issues. While generation improved in fiscal 2021, with PLF at 21.0%, it remained lower than P-90 levels. Further, for operational projects in the group, weighted average generation remains below P-90 level due to weak wind pattern and one-time issues.

 

CRISIL Ratings expects operating performance to remain close to the P-90 levels in future, given the operating track record of projects. However, any deviation in the operating performance can impact the cash flows and thus remains a key monitorable.

 

• Average financial risk profile of the holding company and refinance risk

The financial risk profile is constrained by moderate debt protection metrics. In fiscal 2023, net debt to trailing twelve months earnings before interest, tax, depreciation and amortisation (Ebitda) ratio is expected to be around 8 times (while debt taken for under-construction assets is loaded, Ebitda contribution will start mainly from fiscal 2024; around 5.9 times in fiscal 2022). Adjusted interest cover is projected at 1.4 times in fiscal 2023 (1.1 times in fiscal 2022). Net debt to Ebitda levels are expected to correct going forward as the under-construction assets fully ramp-up. Further, CGEIPL is dependent on up-streaming of cash flows from its SPVs. While, it has sufficient liquidity in the near term, any delays in receiving cash flows from SPVs to support CGEIPL’s debt servicing requirements will be a key rating sensitivity factor.

 

The group will remain exposed to debt refinancing risk, with the CEAPL bond maturing in January 2026. However, healthy business risk of underlying assets and healthy blended DSCR over available useful life of the projects lends comfort.

 

• Exposure to implementation and stabilisation risks

In calendar year 2022, the group has so far commissioned 221.3 MW of wind and 17.5 MWp of solar capacities and is currently implementing 181.1 MW of wind and 122.5 MWp of solar capacities, (expected to be commissioned by third quarter of fiscal 2023). Further, it is developing another ~822 MW of wind and solar capacities which will be implemented over the next 12 to 15 months. Thus, the group remains exposed to stabilisation and implementation risks. However, the track record of execution and calibrated expansion strategy with a prudent funding mix lends comfort. Moreover, CRISIL Ratings understands that any expansion is expected to be backed by strong visibility for evacuation and PPA. Any significant deviation from these factors will be a monitorable.

 

• Exposure to regulatory changes in tariff structure and wind policy

The PPAs with third-party customers are tied-up on a gross tariff basis with charges relating to open access, cross subsidy surcharge and additional charges borne by the SPVs. Typically, the PPAs provide for sharing of increase or decrease in industrial tariffs and various regulatory charges with the customers. As a result, the ability of the company to pass on the quantum of these regulatory charges to customers, as per the terms of the PPA, remains monitorable from a credit perspective.

Liquidity: Strong

Liquidity at the Surajbari project level is strong, driven by DSRA balance of Rs 8.4 crore and unencumbered cash of Rs 9.1 crore, as on June 30, 2022. Internal accrual and cash and equivalents should suffice to cover the repayment obligation of Rs 13.4 crore in fiscal 2023 and any incremental working capital requirement at the project level. Currently, the Surajbari project has no fund-based working capital limit. Also, it has no further capital expenditure plans at the project level.

 

Apart from the Surajbari project, CGEIPL had cash and equivalents of nearly Rs 213 crore at the standalone level (excluding cash available at Surajbari project and other SPVs) as on June 30, 2022, including cash margin provided for non-fund-based facilities. CGEIPL has healthy financial flexibility, driven by its business risk profile marked by the healthy underlying portfolio of operational assets with surplus generation available for upstreaming to meet interest obligations. Commissioning of under-construction/development project is expected to aid overall business risk profile as well as support refinancing of the CEAPL bond (due in January 2026). Also, management stance to maintain sufficient liquidity and prudent debt levels lends comfort.

Outlook: Stable

CRISIL Ratings believes that the Surajbari project will continue to report healthy operating performance, given its strong PLF track record and ring fencing from the rest of the company's cash flow. CRISIL Ratings believes CGEIPL's credit risk profile will remain stable owing to the steady operational performance of its SPVs and timely commissioning of its under-construction assets.

Rating Sensitivity factors– For Surajbari project

Upward factors

• Sustained generation at or above P-90 levels
• Faster-than-expected debt reduction from any surplus generated resulting in higher DSCRs over the remaining tenure of the loan

 

Downward factors

• Sustained generation at lower than P-90 levels
• Significant delays in receiving payments from counterparties resulting in liquidity stress

 

Rating sensitivity factors – For the working capital facilities of CGEIPL

Upward factors

• Sustained generation at or above P-90 levels for CGEIPL’s portfolio of projects along with timely completion and ramp-up of under-construction assets
• Significantly higher than expected surplus generation resulting in fall in debt and leverage at group level

 

Downward factors

• Sustained generation at lower than P-90 levels for CGEIPL’s portfolio of projects or significant delays in commissioning and ramp-up of under-construction assets
• Significant delays in receiving payments from counterparties (project portfolio) or higher-than-expected support towards under-development projects leading to liquidity stress at a group level

About the Company

CGEIPL, incorporated in 2007, is a holding company with equity investments in renewable power projects of the Continuum group. The company also houses an operational wind power project of 34.5 MW capacity at Surajbari. It is a 100% subsidiary of CGEL (Singapore), which is 92.3% held by North Haven Infrastructure Partners, a fund managed by Morgan Stanley Infrastructure Partners, and 7.7% by Continuum Energy Pte Ltd (Singapore).

 

At a group level, Continuum has ~900 MW of wind and 96.3 MWp of solar capacities fully operational. It is currently implementing 181.1 MW of wind and 122.5 MWp of solar capacities. Further, it is developing another ~822 MW of wind and solar assets. Projects are spread across Gujarat, Madhya Pradesh, Maharashtra, and Tamil Nadu.

Key Financial Indicators– (standalone) – CRISIL Ratings adjusted numbers

Particulars	Unit	2022 (prov)	2021
Revenue	Rs crore	160	106
Profit after tax (PAT)	Rs crore	-96	-67
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	0.93	0.47
Interest coverage	Times	1.1	1.2

NM: Not meaningful

Any other information: Not applicable

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	Long Term Bank Facility	Dec-17	9.85%	Sep-28	63.76	NA	CRISIL A/Stable
NA	Bank Guarantee*	NA	NA	NA	148	NA	CRISIL A-/Stable
NA	Overdraft facility	NA	NA	NA	17	NA	CRISIL A-/Stable

*Includes sub-limit of performance bank guarantee of Rs 148 crore

Annexure – List of entities consolidated

Name of the company	Extent of consolidation	Rationale for consolidation
Bothe Windfarm Development Pvt Ltd	Moderate	Subsidiary
Uttar Urja Projects Pvt Ltd	Moderate
DJ Energy Pvt Ltd	Moderate
Watsun Infrabuild Pvt Ltd	Moderate
Trinethra Wind and Hydro Power Pvt Ltd	Moderate
Renewables Trinethra Pvt Ltd	Moderate
Kutch Windfarm Development Pvt Ltd	Moderate
Srijan Energy Systems Pvt Ltd	Moderate
Morjar Windfarm Development Pvt Ltd	Moderate	Subsidiary of Srijan Energy Systems Pvt Ltd
Continuum Trinethra Renewables Pvt Ltd	Moderate	Subsidiary
Continuum Power Trading (TN) Pvt Ltd	Moderate	Associate company, however, expect funding to come largely from CGEIPL and its subsidiaries