Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs.1,000 crore proposed non-convertible debentures (NCDs) of Sustainable Energy Infra Trust (SEIT) and reaffirmed its ‘CRISIL AAA/Stable’ rating on the long term loan bank facility.

 

SEIT is a renewable energy infrastructure investment trust (InvIT) sponsored by Mahindra Susten Pvt Ltd (Mahindra Susten) and Ontario Teachers’ Pension Plan (OTPP).

 

The rating reflects the strong and diversified underlying portfolio of 1.13 GW (AC) operational solar projects. These assets have healthy revenue visibility, supported by long-term power purchase agreements (PPAs) — majority with strong counterparties — at pre-determined tariffs, operating track record better than P90 generation, healthy receivables period, and expectation of strong debt service coverage ratio (DSCR) over the entire debt tenure, supported by adequate liquidity.

 

The liquidity profile is supported by a debt service reserve account (DSRA) equivalent to one quarter debt obligation. Additionally, the management has articulated that there will be at least four months of liquidity, including the stipulated DSRA and cash accumulating on the books due to the timeline of dividend distribution, inherent in the structure of InvITs making distributions at quarterly rests. SEIT also has provisions in its financing arrangements for additional working capital facilities up to an amount of Rs 150 crore, thereby providing liquidity cushion. Moreover, the management has articulated that the majority of the portfolio will be inclined towards central counterparties and strong state distribution companies (discoms), where there is adequate track record of timely payment.

 

According to the InvIT disclosures, the net debt to enterprise value was 43.29% as on September 30, 2024. The net debt is capped at 49% of the SEIT’s valuation till the first six distributions are complete, in compliance with InvIT regulations. Contingent on the InvIT regulations, the leverage may increase and will remain a key monitorable.

 

These strengths are partially offset by a percentage of the portfolio being exposed to receivables from weaker state discoms, and susceptibility to risks inherent in operating renewable assets, and moderate refinancing risk.

 

SEIT currently has approval for raising funds by way of issuance of up to Rs 2,000 crore of NCDs in one or more tranches. The proceeds are proposed to be utilized to partially replace the outstanding term loans. As such, at a consolidated level, debt shall remain unchanged, post the issuance. The NCD tranche proposed to be raised in the near term is likely to have bullet like maturity profile, which exposes the portfolio to moderate refinancing risk. That said, the long tenor of the PPAs and tail period of four years post the amortization of the consolidated current debt, provides comfort.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of the InvIT and all the solar assets, with cumulative capacity of 1.13 GW (AC). This is in line with the CRISIL Ratings criteria for rating entities in homogenous groups. 

 

The entire outstanding debt is at the InvIT level and will be serviced from cash flows up-streamed from the underlying assets. Furthermore, the SPVs will have to mandatorily dispense 90% of their net distributable cash flow (after meeting their debt obligation) to the InvIT, leading to highly fungible cash flow.

 

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:

• Revenue visibility with long-term PPAs and healthy generation track record: The overall portfolio of 1.13 GW (AC) spans eight projects and five states. This reduces generation risk, as evident from the track record of plant load factor (PLF) consistently exceeding the P90 value at the overall portfolio level, with average capacity-weighted AC PLF for fiscal 2024 being 25.0% against the average P90 of 24.7%. However, the generation in first 10 months of fiscal 2025 was lower than the corresponding same period in fiscal 2024, mainly due to irradiation issues in the Rajasthan and Madhya Pradesh regions.

 

The InvIT has PPAs with six counterparties, with 73% of the capacity under central counterparties and majority of the rest with strong state discoms. The PPAs carry a pre-determined tariff for a 25-year tenure, with weighted average PPA residual tenure of around 20 years. Furthermore, the weighted average tariff of the portfolio is ~Rs 3 per kilowatt-hour (kWh) for most of the loan tenure. This provides revenue visibility, minimizes offtake risk and ensures steady cash flows.

 

The established technology and Mahindra Teqo Pvt Ltd being the operations and maintenance (O&M) operator will also help, given the significant experience of Mahindra Teqo in managing renewable assets of Mahindra Susten and other independent players.

 

The receivables days for the overall portfolio is healthy at around 32 days as on March 31, 2024. However, historically, there were significant delays in payment for the 10-megawatt (MW) plant with Southern Power Distribution Company of Telangana Limited (APSPDCL) as counterparty, and the 42 MW plant with Northern Power Distribution Company of Telangana Limited (TSNPDCL) as counterparty (together accounting for 7-8% of total revenue). That said, under the Late Payment Surcharge (LPS) scheme, receivables from the Telangana discom have improved significantly. Payments from all other counterparties are received on time.

 

• Healthy financial risk profile: The financial risk profile is supported by strong average DSCR throughout the tenure of the debt (at CRISIL Ratings-sensitised projections done at P90 PLF).

 

The financial risk profile is also supported by an upfront cash DSRA covering three months of debt obligation. Also, as per the InvIT guidelines, net debt cannot exceed 49% of the asset value (until six consecutive dividend distributions). SEIT will explore renewable assets beyond solar with both state and central counterparties, contingent on tariffs being viable. It has the ‘right of first offer’ on Mahindra Susten’s assets for a period of nine years, which currently have a pipeline of around 3 GWp as on Dec 31, 2024. Acquisitions may change the leverage profile of SEIT.

 

CRISIL Ratings will closely monitor the leverage, and any material increase that weakens the DSCR more than expected will be a rating sensitive factor.

 

Weaknesses:

• Exposure to receivables from state discoms: Long-term PPAs with discoms having relatively weak liquidity and payment track records pose receivables risk. This can be seen in the receivables profile of the Andhra Pradesh and Telangana assets. This is mitigated through liquidity in the form of DSRA of around three months of debt obligation and additional cash present and payments from most of the counterparties being received on time.

 

• Susceptibility to risks inherent in operating renewable assets: Cash flow of solar projects is sensitive to PLF, which depends on solar irradiation, which is inherently unpredictable. Solar assets are also vulnerable to annual degradation of the solar panels. This may increase exponentially in the later part of an asset’s life.

 

• Moderate refinancing risks: The proposed NCDs are likely to have bullet like maturity profile which exposes the InvIT to moderate refinancing risk. However, the PPAs of the underlying assets will have at least a 10-year tenure extending beyond the bullet repayment dates which should help comfortably refinance the debt. SEIT is expected to prudently refinance the maturing debt and maintain its healthy DSCR over the medium term.

Outlook: Stable

SEIT will continue to benefit from sustained PLF performance, long-term PPAs with strong counterparties, and diversity in projects.

Rating sensitivity factors

Downward factors:

• Increase in leverage or debt-led acquisitions leading to significant decline in average DSCR over the life of the portfolio
• Sustained weakening of operational performance reflected in weighted average AC capacity utilisation factor (CUF) below P90
• Future acquisitions leading to sharp deterioration in counterparty mix with inadequate liquidity buffers

About the trust

SEIT is a renewable energy InvIT sponsored by Mahindra Susten and OTPP, with Sustainable Energy Infra Investment Managers Pvt Ltd as its investment manager, Green Energy Infra Project Managers Pvt Ltd as its project manager, and Axis Trustee Services Ltd serving as the trustee.

 

The InvIT received registration certificate from the Securities and Exchange Board of India on August 11, 2023, and listed its units on January 15, 2024.

 

The broad details of the assets held by SEIT are as follows:

Current holding entity	Location	Capacity (AC MW)	Initial Tariff (Rs/Kwh)	COD	PPA (in years)	Off-takers[1]
Megasolis Renewables Pvt Ltd [2]	Baap, Rajasthan	250	2.530	29-Oct-21	25	SECI
Megasolis Renewables Pvt Ltd	Rewa, Madhya Pradesh	250	2.979*	03-Jan-20	25	MPPMCL and DMRC
Mega Suryaurja Pvt Ltd	Baap, Rajasthan	250	2.540	17-Jun-22	25	SECI
Emergent Solren Pvt Ltd	Bikaner, Rajasthan	200	2.500	14-Oct-21	25	SECI
Emergent Solren Pvt Ltd	Goyalri, Rajasthan	60	4.350	30-Apr-17	25	NTPC
Astra Solren Pvt Ltd	Charanka, Gujarat	40	4.430	30-Apr-17	25	SECI
		25	4.430	02-Jul-17	25	SECI
Neo Solren Pvt Ltd	Wadekottapally, Telangana	42	5.595	06-Nov-17	25	TSNPDCL
Brightsolar Renewable Energy Pvt Ltd	Ananthpuram, Andhra Pradesh	10	5.990**	05-Jan-16	25	APSPDCL

*Yearly escalation of Rs 0.05 from 2nd to 16th year

**Yearly escalation of 3% till 10th year

[1] SECI: Solar Energy Corporation of India Ltd, MPPMCL: MP Power Management Company Ltd, DMRC: Delhi Metro Rail Corporation, NTPC: National Thermal Power Corporation Ltd, TSNPDCL: Northern Power Distribution Company of Telangana Ltd, APSPDCL: Southern Power Distribution Company of Andhra Pradesh Limited.

 

[2] Name of the company changed from Mahindra Renewables Pvt Ltd to Megasolis Renewable Pvt Ltd with effect from May 2023.

About the co-sponsors

Incorporated in 2010, Mahindra Susten offers turnkey solutions for engineering, procurement and construction (EPC) and development of independent solar power projects. At present, it is ~60% held by M&M through its 100% subsidiary Mahindra Holdings Ltd, with the balance stake held by OTPP.

 

Canada-based OTPP, is one of the world’s largest pension plans, with C$255.8 billion in net assets as on June 30, 2024, and presence in over 50 countries. It is jointly sponsored by the Government of Ontario and the Ontario Teachers' Federation.

Key Financial Indicators

Particulars	Unit	2024**	2023*
Operating income	Rs crore	NM	NA
Adjusted profit after tax (PAT)	Rs crore	NM	NA
Adjusted PAT margin	%	NM	NA
Adjusted debt/adjusted networth	Times	NM	NA
Adjusted interest coverage	Times	NM	NA

*Past financial data is not available as the company has recently been registered

**Not meaningful as InvIT operations began from Jan 2024