Continuum Green Energy (India) Private Limited

Rating upgraded to 'CRISIL BBB+/Stable'; Rating withdrawn; Surajbari project rating outlook revised to 'Positive'; Rating reaffirmed

 

Rating Action

Total Bank Loan Facilities Rated	Rs.63.76 Crore (Reduced from Rs.232.88 Crore)
Long Term Rating	CRISIL A-/Positive (Outlook revised from ‘Stable’; Rating Reaffirmed)
Long Term Rating	CRISIL BBB+/Stable (Upgraded from ‘CRISIL BBB/Stable’; Rating withdrawn)

1 crore = 10 million   

Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term loan facility availed for the 34.5 megawatt (MW) wind project in Surajbari (Kutch, Gujarat), an asset residing in Continuum Green Energy (India) Private Limited (CGEIPL), to ‘Positive’ from ‘Stable’. Also, the rating on the long-term loan facility of Rs 4.12 crore, availed for the said project, has been withdrawn on the request of the company, and upon confirmation from the lender. Also, CRISIL Ratings has upgraded the rating on the existing bank guarantee facility of CGEIPL (also the holding company of renewable assets of the Continuum group) to 'CRISIL BBB+/Stable' and simultaneously withdrawn the rating at the request of the company and on receipt of a no-objection communication from the bankers. The withdrawal is in-line with CRISIL Ratings’ policy on withdrawal of bank loan ratings.

 

The revision in outlook on the rating of the long-term facilities of Surajbari project reflects the expected improvement in the debt service coverage ratio (DSCR) over the remaining tenure of the project loan, owing to the prepayment of a part of the loan, and the stable receivables profile with entire capacity tied-up with strong and diversified counterparties. The ratings also factor in the ring fencing of the project's receivables for the servicing of the term loan, and the operational track record of the project with annual plant load factor (PLF) above P-90 levels over fiscals 2016-2020. These strengths are partially offset by exposure to risks inherent in operating wind projects.

 

The upgrade in the rating on the other bank facilities of CGEIPL factors in the improvement in the business risk profile with the formation of Continuum Restricted Group (CRG), which consists of six operational special purpose vehicles (SPVs) and improved liquidity post refinancing of existing debt. The CRG entities now enjoy diversification benefits, have strong revenue visibility and low offtake risk, and strong financial flexibility along with cross guarantee structure. These strengths are partially offset by the average financial risk profile, moderate counterparty credit risk and exposure to risks inherent in operating wind projects and residual project execution.

Analytical Approach

For arriving at the ratings on the bank guarantee facilities, CRISIL Ratings has moderately consolidated the operational and under-development 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. 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:

• Healthy debt protection metrices of the Surajbari project

Despite weak generation in fiscal 2021, (PLF of 17.9%, well below the P-90 levels), company has used excess liquidity to prepay around Rs 5.5 crore of long-term loan. This has resulted in lowering of the overall tenure by a couple of quarters and interest costs. Consequently, the average DSCR for the project is expected to improve, with the stabilisation of the PLFs close to P-90 levels.

 

• Strong and diversified counterparties of the Surajbari project with comfortable payment cycle

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 lower than 1 month in the past years. The payment cycle should remain stable going forward as well. Any weakening in the cycle will be a rating sensitivity factor.

 

• Improved business risk profile with the formation of CRG

The business risk profile of CGEIPL is driven by equity investments in its six operational SPVs (part of the CRG) viz. Bothe Windfarm Development Private Limited (BWDPL), DJ Energy Pvt Ltd (DJEPL), Uttar Urja Projects Pvt Ltd (UUPPL), Watsun Infrabuild Pvt Ltd, Trinethra Wind and Hydro Power Pvt Ltd and Renewables Trinethra Pvt Ltd (all rated CRISIL A+/Stable). 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.

 

Further, equity requirement for the group’s under construction projects of 302.5 MW located in Gujarat, is already in place. These projects are expected to be commissioned in fiscal 2022.

 

CGEIPL receives cash flow from these SPVs in the form of management fee, interest income on compulsorily 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 over the past two fiscals.

 

• Significant improvement in liquidity post refinancing of existing non-convertible debentures (NCDs)

The company has fully refinanced the NCDs of Rs 425 crore along with redemption premium of about Rs 135 crore, which were due in June 2021. It has raised fresh NCDs aggregating to Rs 800 crore in April 2021 with a tenure of 4.5 years thereby lowering any near-term refinancing risk. With the refinancing of NCDs and up-streaming of excess liquidity in operational SPVs, company’s liquidity improved significantly, to about Rs 680 crore (excluding cash available at Surajbari project and other SPVs) as on July 31, 2021. With the entire equity contribution towards under construction project in-place, this equity is expected to be available for servicing debt and for future expansion.

 

Weaknesses:

• High counterparty credit risk resulting in receivables of upwards of Rs 400 crore

Around 50% of the portfolio is exposed to high counterparty credit risk, with significant delays in payments from the state discoms viz. MSEDCL and MPPMCL, owing to the COVID-19 pandemic. As on June 30, 2021, the total outstanding dues from MSEDCL (for BWDPL) stood at Rs 283 crore, which translates to receivables of 477 days (on trailing 12-month revenue) and that from MPPMCL (for DJEPL and UUPPL) stood at Rs 121 crore with receivables of 259 days. The group received about Rs 93.3 crore from MSEDCL and Rs 15.8 crore from MPPMCL, in August 2021, however, any further stretch in receivables from the 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 P90 (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 fiscal 2021 was weak, CRISIL Ratings expects operating performance to remain close to the P-90 levels in future, given the project’s operating track record. However, any deviation in the operating performance can impact cash flows and thus remains a key 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. The PPAs provide for 50% 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.

 

• Average financial risk profile of the holding company

The financial risk profile is constrained by moderate debt protection metrics. Net debt to earnings before interest, tax, depreciation and amortisation (ebitda), ratio is expected at 5-6 times in fiscal 2022. Further, CGEIPL is dependent on up-streaming of cash flows from its SPVs including CRG. While, it has sufficient liquidity in the near term any delays in receiving cash flows from SPVs, can hamper its ability to meet debt obligations in the longer run.

Liquidity: Strong

Liquidity at Surajbari project level is strong, driven by debt service reserve account (DSRA) balance of Rs 8.6 crore and free cash of Rs 1.6 crore, as on July 31, 2021. Internal accrual and cash and equivalents should suffice to cover the repayment obligation of about Rs 14 crore in fiscal 2022 and incremental working capital requirement at the project level. Currently, CGEIPL has no fund-based working capital limit. Also, it has no capital expenditure plans at the standalone level.

 

Apart from the Suarjbari project, CGEIPL had cash and equivalents of nearly Rs 680 crore (excluding cash available at Surajbari project and other SPVs) as on July 31, 2021, including cash margin provided for non-fund-based facilities.

Outlook: Positive (Surajbari project rating)

CRISIL Ratings believes that the Surajbari project will see improved DSCR levels, given its strong PLF track record and ring fencing from the rest of the company's cash flows.

Rating Sensitivity factors

Upward factors

• Sustained generation at higher than P-90 levels of 23.8%
• 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 of 23.8%
• Significant delays in receiving payments of counterparties resulting in liquidity stress

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 Continuum Green Energy Ltd (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).

Key Financial Indicators - (Standalone) – CRISIL Ratings adjusted numbers

Particulars	Unit	2021	2020
Revenue	Rs crore	106.1	124.9
Profit after tax (PAT)	Rs crore	-63.0	-3.8
PAT margin	%	NM	NM
Adjusted debt/adjusted networth	Times	0.47	0.46
Interest coverage	Times	0.55	1.07

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%	Mar 2029	63.76	NA	CRISIL A-/Positive
NA	Long Term Bank Facility	NA	NA	NA	4.12	NA	Withdrawn
NA	Bank Guarantee	NA	NA	NA	165.00	NA	CRISIL BBB+/Stable (Upgraded and withdrawn)

 

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
Continuum MP Windfarm Development Pvt Ltd	Moderate
Srijan Energy Systems Pvt Ltd	Moderate
Kutch Windfarm Development Pvt Ltd	Moderate	Subsidiaries of Srijan Energy Systems Pvt Ltd
Morjar Windfarm Development Pvt Ltd	Moderate
Continuum TN Power Trading Pvt Ltd	Moderate	Associate company, however, expect funding to come largely from CGEIPL and its subsidiaries