Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings on the bank facilities and non-convertible debentures of RattanIndia Power Ltd (RIPL).

 

On December 12, 2023 CRISIL Ratings has assigned its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings to the bank facilities and non-convertible debentures of RIPL.

 

CRISIL Ratings has noted the announcement by RIPL on April 30, 2024, intimating the exchanges that REC Ltd (REC), holding 0.001% redeemable preference shares (RPS) of Rs 28.72 crores in RIPL, has filed an application against the company in the National Company Law Tribunal (NCLT), under Section 7 of the Insolvency and Bankruptcy Code (IBC) which is not yet admitted. The RPS were issued on December 27, 2019, as part of a one-time settlement (OTS). Of the total Rs 250 crore RPS issued, REC holds Rs 28.72 crore, while the rest are held by other 11 erstwhile lenders of RIPL, including Power Finance Corporation Limited and State Bank of India.

 

CRISIL Ratings understands from management that the RPS had initially become redeemable on December 27, 2021. However, inspite of having sufficient cash and cash equivalent balance , the redemption could not be done due to limitations as per the provisions of section 55(2) of the Company Law Act which state that such redemption is permissible only out of profits earned by the company which are otherwise available for dividend, after adjusting for the accumulated losses, or out of the proceeds of a fresh issue of shares made for the purposes of such redemption.

 

According to the management, the application filed under Section 7 of IBC Code is not maintainable under the applicable laws and plans to pursue the legal remedies in the matter available under the applicable laws. Company has been in active discussions with the RPS holders to extend the redemption of RPS till December 2026 (post last repayment tranche of secured debt).

 

That said, the management has articulated that in any adverse scenario, necessary safeguards, and liquidity, including promoter support, will be made available, to ensure that RIPL’s operations are not impacted.

 

CRISIL Ratings understands that any liability is contingent on NCLT admitting REC’s application. CRISIL Ratings will monitor the NCLT proceedings and its potential implication on the credit profile of RIPL will need to be assessed and will be monitorable.

 

Based on the analytical approach of CRISIL Ratings, only secured debt has been considered for leverage analysis. In line with understanding from the management and supporting legal opinion, the 0.001% RPS and 0.001% optionally convertible cumulative RPS (OCCRPS) from original lenders to the project, has been assumed to be serviced in line with the Company Law Act.

 

RIPL’s business risk profile continues to benefit from low offtake risk backed by long-term power purchase agreements (PPAs) of 25 years for almost its entire net capacity, available fuel supply agreement (FSA), and timely receipt of regular receivables from its counterparty, Maharashtra State Electricity Distribution Company Ltd (MSEDCL).

 

Post the OTS in December 2019, the outstanding secured debt got reconstituted to Rs 3,665 crore. Furthermore, healthy plant availability, improved plant load factor (PLF) since fiscal 2022 and timely receipts of dues from counterparty including liquidation of regulatory receivables, has enabled RIPL to reduce the secured debt to Rs 522  crore as on March 31, 2024.

 

Profitability, however, continues to be dependent on the timely and adequate supply of coal. Going forward, any downtrend in revenue and profitability, in line with PPA tariff structure, may impact servicing ability. However, the financial profile is likely to be supported by the excess cash accumulated in lenders’ trust and retention account (TRA), which will support debt servicing in fiscals 2026 and 2027. During fiscal 2024, RIPL has generated Total Income of Rs 3,374 crore (including Rs 370 crore of other income), which led to healthy earnings before interest, taxes, depreciation and amortisation (EBITDA) of 27% (fiscal 2023: 31%, fiscal 2022: 29%).

 

As on March 31, 2024, the company had unencumbered cash and cash equivalents of around Rs 370 crore (excluding margin and DSRA). Operations of the plant are managed through a monitoring agency and all cashflows are escrowed in TRA and operational expenses and debt servicing are prioritized. RIPL cannot withdraw from TRA without lenders’ consent. The company plans to continue to utilize the excess cash for prepayments periodically, subject to the terms and conditions of the lenders. For instance, the company made prepayments of Rs 348 crore in fiscal 2024, over and above the scheduled quarterly repayments.

 

These strengths are partially offset by the moderate financial risk profile and presence of counterparty risk due to long-standing, albeit improving levels of outstanding regulatory receivables from MSEDCL.

Analytical Approach

CRISIL Ratings has analysed the standalone business and financial risk profiles of RIPL to arrive at its ratings owing to the presence of a ring-fenced mechanism that insulates it from other assets in the group. RIPL entered into a settlement agreement with its erstwhile lenders in December 2019 along with signing an agreement to release RIPL of its obligations of servicing debt of its subsidiary Sinnar Thermal Power Ltd (presently a non-performing asset) out of RIPL’s cash flow.

 

Furthermore, as part of OTS, aside from secured debt, RIPL also has Rs 1,450 crore of inter-corporate deposits from its promoters, and Rs 368 crore of unsecured loans from Aditya Birla ARC (previous lender), which has been subordinated to the rated debt under the subordination agreement signed by both debt holders.

 

Moreover, there are also 0.001% RPS and 0.001% optionally convertible cumulative RPS (OCCRPS) from original lenders to the project, which would be serviced in line with the Company Law Act.

 

CRISIL Ratings has considered only secured debt for leverage analysis, given, as per understanding from the management, the subordinated debt is long-drawn and expected to be repaid only after secured debt is paid off.

 

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:

• Low offtake and fuel supply risk: The company has a 25-year PPA (till 2040) with MSEDCL for almost its entire net capacity, which reduces offtake risk and provides revenue visibility. The tariff structure allows the company to recover its entire fixed cost, provided the plant achieves a normative plant availability factor (PAF) of 85%.

 

Additionally, the plant has adequate fuel linkage for its coal requirement driven by FSA with SECL for 6.1 metric tonne per annum (MTPA). Moreover, in case of further requirement or unavailability, the plant may procure coal from other alternate sources, contingent on requisite approvals, which allows it to show availability and recover fixed energy charges. Coal availability and its impact on PAF will remain monitorables.

 

• Healthy operating performance: For the past three fiscals, the company has demonstrated a healthy track record of generation and offtake. The company has achieved PAF of 86% in fiscal 2024 (81% in fiscal 2023) leading to healthy recovery of fixed cost.  Further, the company has achieved the highest ever PLFs of 81% in fiscal 2024  for the plant since commissioning in March 2015, as compared to 77% in fiscal 2023 and 75% in fiscal 2022, driven by higher demand from MSEDCL. This has led to optimum recovery of variable energy charges as well.

 

The Amravati plant is placed at 21 percentile in Merit Order Dispatch (MoD) for Maharashtra, which enables the plant to have healthy PLFs. Since ~80% of the revenue is through energy charges, the ability of the plant to have steady offtake and hence, maintain moderate coal availability becomes critical.

 

The ability of RIPL to consistently recover its fixed capacity and variable energy charges, thus, generating healthy operating performance, will be a sensitivity factor. 

 

Weaknesses:

• Moderate financial risk profile: RIPL had low external secured debt of Rs 522 crore as on March 31, 2024. However, inspite of recent refinancing, the cost of funding remains on the higher side. This adversely impacts the company’s financial flexibility. This is expected to improve in the near-to-medium term as the company establishes a track record of timely servicing of debt.

 

Post receiving favourable judgement from the appropriate judicial forum, the company has made collections of regulatory receivables amounting to Rs 1,190  crore since fiscal 2022 till  March 2024. The company has partially utilised these proceeds to repay/prepay debt, which has improved its debt coverage ratios.

 

As on date, aside from secured debt, RIPL also has Rs 1,450 crore of inter-corporate deposits from its promoters, Rs 368 crore of unsecured loans from Aditya Birla ARC (previous lender), and RPS/OCCRPS in favour of erstwhile lenders. Based on management articulation and agreements signed by current lenders with promoters and erstwhile creditors, CRISIL Ratings understands that these facilities are subordinate to secured debt and will be paid only once the latter is extinguished.

 

That said, any obligations arising out of subordinate debt will be a key monitorable.

 

• Susceptibility to weak credit risk profile of counterparty: MSEDCL as an off-taker exposes RIPL to high counterparty risk. Debtors wre high at more than 200 days as on March 31, 2023, with total receivables at ~Rs 1,732  crore. However, out of the total receivables, ~81% are regulatory receivables and the rest are regular receivables. The regulatory receivables are on account of various changes in law billings, late payment surcharges and gross calorific value (GCV) related issues. However, the company has received favourable judgement from the relevant judicial forum basis which it has already recovered some of its regulatory receivables. This has led to regulatory receivable days being reduced from 360 days as on March 31, 2021 to 153 days as on March 2024

Liquidity: Adequate

Liquidity is supported by cash balance of about Rs 635 crore (including DSRA and margin against non-fund-based facilities) against debt obligations of Rs 522 crore as on March 31, 2024. Adequate liquidity is duly reinforced by the existence of TRA with the lender, under which all operational cashflows of RIPL is escrowed and utilised in a defined waterfall mechanism with priority for meeting operating expenses and timely debt servicing. The company also does not have major capital expenditure (capex) plans in the near term. However, any significant capex requirement, for instance, expenditure on flue gas desulphurisation (FGD) compliance, will be a key monitorable.

Outlook: Stable

CRISIL Ratings believes RIPL's credit risk profile will remain stable with healthy business and financial risk profiles in the medium term.

Rating Sensitivity factors

Upward factors:

• Sustained improvement in liquidity, utilised to prepay loan obligations
• Debt reduction leading to improvement in average debt service coverage ratio (DSCR) to more than 2 times over the remaining project life

 

Downward factors:

• Significant delay in receipt of payments from counterparties
• Weakening of the operating performance, for instance, PAF less than 80%, impacting cash flow and debt servicing
• Large, debt-funded capex, deteriorating the financial risk profile

About the Company

RIPL is a private power generation company with installed capacity of 1,350 MW (5 x 270 MW each) having thermal power plants at Amravati in Maharashtra. All the units were commissioned by March 2015. The plant has power offtake arrangement of 1200 MW with MSEDCL under long-term PPA for 25 years and matching FSA for 6.10 MTPA with SECL (a subsidiary of Coal India Ltd).

 

RIPL is promoted by the RattanIndia group.

Key financial indicators: Standalone

As on / for the period ended March 31	Unit	2024 Audited	2023 Audited
Operating income	Rs crore	3,364	3,231
Profit after tax (PAT)	Rs crore	217*	333
PAT margin		6.5*	10.3
Adjusted debt / adjusted networth	Times	0.77	0.69
Interest coverage	Times	1.8	2.1

*excludes exceptional item of Rs 1,245 crore for impairment/ write off expense

Status of non cooperation with previous CRA:

RattanIndia Power has not cooperated with Brickwork Ratings, which has published its ratings as an issuer not co-operating vide a release dated August 23, 2019. The reason provided by Brickwork Ratings was non-furnishing of information by RattanIndia Power for monitoring the ratings.

Any other information: Not Applicable