Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable’ rating on the bank facilities of Continuum Green Energy (India) Private Limited (CGEIPL) (holding company of the renewable assets of the Continuum group). Also, CRISIL Ratings has withdrawn its rating on the long-term bank facility of CGEIPL, availed for its 34.5-MW wind project in Surajbari, Gujarat, at the request of the company and upon receipt of no-dues certificate from the lender. The withdrawal is in line with the rating withdrawal policy of CRISIL Ratings.

 

The rating on the working capital facilities of CGEIPL continues to reflect the healthy business risk profile of the group with operational wind capacity of 1,019 MW and 219 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). This is expected to increase to ~1.1 gigawatt (GW) of wind and ~219 MWp of solar capacities by the first quarter of fiscal 2024 (with the expected commissioning of under-construction asset). The rating also factors in a robust counterparty mix and liquidity, with funds required to meet the equity requirement for the next phase of expansion already in place. These strengths are partially offset by an average financial risk profile, and 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.

 

CRISIL Ratings understands that Morgan Stanley Infrastructure Partners, which has majority stake in the Continuum group through its fund North Haven Infrastructure Partners, is looking to divest its entire stake. Growth philosophy going forward and any significant change in the management composition, likely to have an impact on the business and financial risk profiles of the group, will be key monitorables.

 

*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 the CRISIL Ratings criteria of consolidation. Further, loans given by SPVs to CGEIPL are treated as neither debt nor equity while compulsorily convertible debentures from the parent, Continuum Green Energy Ltd (CGEL; Singapore based), are treated as equity. For arriving at the rating 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

Healthy business risk profile along with improvement in counterparty mix

The business risk profile is driven by equity and debentures held in its 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), Continuum Power Trading (TN) Pvt Ltd (CPTTNPL; 126 MW wind asset in Gujarat), and two partly commissioned Gujarat-based SPVs (Morjar Windfarm Development Pvt Ltd [MWDPL, 148.5 MW wind asset with 91.8 MW commissioned] and Continuum Trinethra Renewables Pvt Ltd [CTRPL; 99.9 MW wind asset with 94.5 MW commissioned and 140 MWp solar asset]) and three under-construction solar-wind hybrid assets (337.5 MW wind and 485.7 MWp solar in Dalaivapuram [Tamil Nadu], Bhavnagar [Gujarat] and Ratlam [Madhya Pradesh]), which are expected to be fully operational by the third quarter of fiscal 2024.

 

The CRG structure provides diversification benefits and strong financial flexibility to absorb 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 (774.4 MW of wind and 625.6 MWp of solar, including under-construction assets), the counterparty profile includes Solar Energy Corporation of India (SECI) and commercial and industrial (C&I) customers with healthy credit risk profiles.

 

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

 

Improved financial flexibility post external fund raise

The group had raised USD 400 million in an associate entity, Continuum Energy Aura Pte Ltd (CEAPL), a Singapore-based 100% subsidiary of CGEL (the parent entity of CGEIPL) in the second quarter of fiscal 2023. These bonds are to be repaid through a single bullet at the end of their tenure in January 2026 with half-yearly interest servicing. Furthermore, the management has indicated that the company will maintain sufficient liquidity to cover interest payments over the near term while the newer assets ramp-up generation.

 

Of the total USD 400 million, USD 308.5 million has been remitted at CGEIPL level up to March 2023, which in addition to refinancing of existing NCDs and prepayment of Surajbari project debt has been utilised for equity infusion in the under-construction projects. Also, as this exposes the group to foreign exchange risk, CRISIL Ratings understands that the management is adopting adequate hedging mechanisms to mitigate the same.

 

CRISIL Ratings believes surplus from operational and under-construction projects as they ramp-up should be sufficient to cover the interest obligation for the CEAPL bond. As on March 31, 2023, CGEIPL had unencumbered cash of Rs 217 crore.

 

Weaknesses

Counterparty credit risk emanating from exposure to weak discoms

Around 28% of the group’s operational capacity is exposed to high counterparty credit risk, with significant delays seen in payments from the state discoms, MSEDCL and MPPMCL. However, following the introduction of the late payment surcharge scheme, the payment cycle has improved with dues pertaining to earlier months of generation being paid as per the timelines agreed upon. Furthermore, payments for recent generation months are being paid within timelines as per PPAs. As on December 31, 2022, receivables (on trailing 12-month revenue) from MSEDCL stood at 338 days (down from peak of 405 days as on March 31, 2022) and from MPPMCL (for DJEPL and UUPPL) stood at 327 days (down from peak of 451 days as on June 30, 2022). While these have led to improvement in receivables, any further stretch in the payment cycle from these discoms is a key rating sensitivity factor.

 

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 estimated to be around 8 times (while debt taken for recently commissioned assets is loaded, Ebitda contribution will start mainly from fiscal 2024; around 5.9 times in fiscal 2022). Adjusted interest cover is estimated 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 the upstreaming of cash flow from its SPVs. While it has sufficient liquidity for 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 lend comfort.

 

Exposure to implementation and stabilisation risks

Over the past year, 220.5 MW of wind and 139.9 MWp of solar capacities have been commissioned. Further, the company has 399.6 MW of wind and 485.7 MWp of solar capacities under construction, which are expected to commission by the third quarter of fiscal 2024. 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, and significant deviation from these factors will be a key monitorable.

 

Exposure to risks inherent in operating wind-energy assets and regulatory actions

Wind power generation is highly vulnerable to seasonality and variance in wind intensity. Given that cash flows are highly sensitive to plant load factor (PLF) of wind assets, these risks could severely impair debt servicing and free cash flow of operational projects, in turn impacting upstreaming of cash flow to CGEIPL. For operational projects in the group, weighted average generation remains below P-90 level owing to weak wind pattern and one-time issues.

 

CRISIL Ratings expects operating performance to remain around P-90 level, given the operating track record of projects. However, deviation in the operating performance may impact the cash flow and thus remains a key monitorable.

 

Furthermore, the group is exposed 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

Cash and equivalent stood at Rs 234 crore at the standalone level as on March 31, 2023, 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 obligation. Commissioning of under-construction/development project is expected to aid the 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 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

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).

 

The Continuum group has fully operational wind capacity of 1,019 MW and 219 MWp of solar and another 399.6 MW of wind and 485.7 MWp of solar assets are under construction. These projects are spread across Gujarat, Madhya Pradesh, Maharashtra and Tamil Nadu. Another 170 MW wind-solar hybrid project in Gujarat (Jamnagar) is under development.

Key Financial Indicators

Particulars	Unit	2022	2021
Revenue	Rs crore	158	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  levels	Rating assigned with outlook
NA	Bank guarantee&	NA	NA	NA	148	NA	CRISIL A-/Stable
NA	Overdraft facility	NA	NA	NA	17	NA	CRISIL A-/Stable
NA	Long-term bank facility	Dec-17	NA	Sep-28	63.76	NA	Withdrawn

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