Rating Rationale

Liquidity: Adequate

JPVL is maintaining a DSRA equivalent to three months of debt servicing (~Rs 207 crore) and has free cash reserves of Rs. 990 crores as on June 30, 2024. The fund-based working capital limit was utilised at around 81% (for Bina and Nigrie) during the 12 months through March 2024. Annual net cash accruals are expected to be healthy on the back of strong merchant market rates and sufficient to fund the debt obligations & capex over the next two fiscals. Liquidity is also aided by the presence of three Trust and Retention accounts, which ensure that surplus cash gets trapped in the system and is used for debt servicing or for meeting operational requirements as permitted by lenders.

LGD assessment – Key drivers

While assessing LGD, CRISIL Ratings has considered several probable events, which could potentially lead JPVL into a default. For each of these events, CRISIL Ratings has evaluated the associated probabilities and likely loss levels, as detailed below.

S. No.	Events	Event Probability (A)	Going Concern/Liquidation	Possible resolution strategy	Loss estimates
1	Counterparty linked delays	Moderate	Going concern	Debt restructuring	Very low
2	Coal supply issues	Moderate	Going concern	Debt restructuring	Moderate
3	Untied capacities and higher reliance on short term markets	Low	Going concern	Debt restructuring	Moderate
4	Regulatory issues	Very Low	Going concern	Moratorium or Debt restructuring	Very low
5	Others (like force majeure events, invocation of corporate guarantee, delay in FGD capex etc.)	Very Low	Going concern	Debt restructuring	Very low

CRISIL Ratings assumes a mutually exclusive probability for each of the probable events while arriving at the corresponding loss estimates (haircut) for the lenders.

Counterparty issues: JPVL has two major counterparties, MPPMCL for its coal plants (1820 MW) and UP discoms for its Hydro plant (400 MW). These counterparties are state discoms having weak credit risk profile exposing JPVL to receivables’ collection risk. While billing and collections from these counterparties are timely at present, there are disputed receivables which form around 46% of the total receivables as of June 2024, which is expected to go up a bit given that UP discom is holding back excess amounts paid in previous years. Company is contesting these disputed receivables at Appellate Tribunal for Electricity (APTEL) and expects recovery of these receivables. Still, JPVL is exposed to counterparty issues which have a moderate probability of occurrence and can arise on account of delay in payments from state discoms and other private counterparties.

Such events generally result into low haircut for the lenders and in most of the cases will be absorbed majorly by the equity shareholders. The most probable resolution strategy in such cases will be debt restructuring.

Coal supply issues: JPVL has two thermal power plants with combined capacity of 1820 MW. It has secured 64% of its fuel requirement of 8.5 MTPA at 85% normative PLFs through Fuel Supply Agreements (1.54 MTPA) and owned captive coal mine (3.92 MTPA). Balance 36% fuel requirement is sourced through e-auctions. While both the plants of company are located in the coal belt having higher probability of sourcing coal on timely basis, it is still exposed to issues which can occur on account of any ban on coal mining in the area where coal is supplied from, increase in fuel or transportation prices or shortage of coal causing a sudden disruption to the plant’s operations bringing down the PLF below the expected levels.

The probability of occurrence of these issues is moderate and such events can result into a moderate haircut for the lenders. The most probable resolution strategy in such cases will be debt restructuring.

Untied capacities and high reliance on short term markets: JPVL currently has long term (> 20 years) power purchase agreements for around 56% of its overall capacity (2220 MW) with its largest thermal power plant at Nigree has long term PPAs only for 37.5% of its capacity (1320 MW). However, a large part of its capacity is still untied due to which dependency on short term markets (bilateral arrangements and merchant markets) had always been high. During fiscal 2024, 33% of overall PLFs (76%) of JPVL has come from short term sales as against 26% (overall PLF: 66%) during fiscal 2023. Untied capacities (975 MW) coupled with unexpected events such as subdued merchant power demand and prices, can put pressure on the financial risk profile of JPVL.

Although, the probability of occurrence of these issues is low, in case such as event happens, it can result into moderate haircut for the lenders. The most probable resolution strategy in such cases will be debt restructuring.

Regulatory issues: Such issues have a very low probability of occurrence and can arise on account of change in payment mechanism or tariff mechanism. For example, significant delays in determination of tariffs or disallowance of some of the cost by regulator resulting in under recoveries of cost for the company, potential levy of carbon / climate taxes on the thermal power plants in future etc.

Such issues shall mostly be absorbed by the equity holders. However, in some cases if the issue is dragged for a prolonged period it may result into low haircut for the lenders. The most probable resolution strategy in such cases will be a debt moratorium for around two years.

Others: Other potential events which may lead JPVL into a default can be force majeure events such as natural calamities like flood, earthquake, pandemic etc., although their probability is expected to be low. Some of the other such events could be invoking by the lenders of the corporate guarantees provided by JPVL for its group entities, which can potentially increase the liability profile of JPVL. The most likely resolution strategy in this case will be debt restructuring by loading the guaranteed debt in line with cashflows of JPVL. If invoked for entire amount, it can result in financial burden on JPVL. Also, inability to complete flue gas desulphurization capex within regulatory timelines, delay or disapproval of FGD capex for determination of PPA tariffs can impact the operating performance and financial profile of the company.

Resolution strategy: The most likely resolution strategy in this case will be a debt restructuring with a low haircut for the lenders.

CRISIL Ratings’ estimates the overall LGD for JPVL will be on the lower side in case of a default. This is given Vishnuprayag hydro plant must run on the merit order scale for Uttar Pradesh discom and consistent scheduling of power from Nigrie plant by Madhya Pradesh discoms due to lower marginal cost of generation of Nigrie plant.

Liability Structure: At the time of resolution of default, CRISIL Ratings assumes a viable liability structure which will lead to sustenance of the debt servicing ability. Any loss arising due to probable reasons of default shall be first absorbed by the equity holders. In case of JPVL, CRISIL Ratings has assumed that the liability structure of JPVL shall remain same as it is currently till the time of resolution of default. Also, the bank loan facility being rated is pari passu to other senior debt obligations and will have the first right over any recovery proceeds. The loss given default at the company level will translate to that of the rated debt instrument as there is no other subordinate or promoter debt.

Arriving at Expected Loss

Combining both PD and LGD assessment with most probable events leading to default and their corresponding financial risk (haircut) for the lenders, CRISIL Ratings has arrived at the estimated expected loss (EL) to be in the range of EL 2 rating on CRISIL’s scale over the life of the bank loan facility being rated.