| Sustainable Energy Infra Trust | ||||
| 'CRISIL AAA/Stable' Converted from Provisional Rating to Final Rating for bank debt | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has converted its provisional rating on the long-term bank facilities of Sustainable Energy Infra Trust (SEIT) to a final rating of ‘CRISIL AAA/Stable’.
CRISIL Ratings has received the final execution version of documents for the facilities being rated. The executed documents are in line with the terms of the transaction when the provisional rating was assigned. Hence, CRISIL Ratings has converted the provisional rating into a final one.
SEIT is a renewable energy infrastructure investment trust (InvIT) sponsored by Mahindra Susten Pvt Ltd (Susten) and Ontario Teachers’ Pension Plan (OTPP). Susten is majority held by Mahindra and Mahindra Ltd (M&M; ‘CRISIL AAA/Stable/CRISIL A1+’). The units of SEIT were listed on January 15, 2024. Mahindra Susten and OTPP, as co-sponsors, hold ~15.04% and ~35.93%, respectively, in the InvIT, while M&M holds ~10.46%. The proceeds from the listing have been partly used to repay the debt at the erstwhile SPV level. Sustainable Energy Infra Investment Managers Pvt Ltd is the investment manager and Green Energy Infra Project Managers Pvt Ltd is the project manager for the InvIT.
The rating reflects the strong and diversified portfolio of 1.13 GW (AC) operational solar projects that have been transferred to the InvIT from Susten. The underlying 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, and expectation of healthy debt service coverage ratio (DSCR) over the entire debt tenure, supported by adequate liquidity. Debt servicing ability will be strengthened by cash flow pooling from all the assets.
The debt will be capped at 49% of the SEIT’s valuation till the first six distributions are complete, in compliance with InvIT regulations. Additionally, the management has articulated that there will be at least four months of liquidity, including debt service reserve account (DSRA) equivalent to one quarter debt obligation and cash accumulating on the books due to the timeline of dividend distribution, inherent in the structure of InvITs. SEIT also has provisions in the term sheets for additional working capital facilities up to an amount of Rs 150 crore, thereby providing liquidity cushion. Moreover, the management has articulated that 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. 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. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of the InvIT and all the acquired 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:
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 22 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, minimises offtake risk and ensures steady cash flow.
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.
Historically, there were significant delays in payment for the 10-megawatt (MW) plant with Andhra Pradesh as counterparty, and the 42 MW plant with Telangana as counterparty (together accounting for 7-8% of total revenue). However, under the Late Payment Surcharge (LPSC) scheme, receivables from the Telangana discom have improved significantly. Payments from all other counterparties are received on time.
The financial risk profile is also supported by an upfront cash DSRA covering three months of debt obligation. Also, as per the InvIT guidelines, 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 ~1,400 MW. 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:
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Liquidity: Superior The DSCR is expected to be strong over the debt tenure. The presence of strong counterparties, with no substantial delays expected for over 90% of the cash flow, will also support liquidity. Furthermore, DSRA equivalent to three months of interest and principal obligations has been created. While no working capital facility has been availed, contrary to the previous understanding, the management has articulated that at least four months of liquidity, including DSRA of one quarter of debt obligation, will be maintained at all time. Moreover, InvIT has the provision to avail additional working capital up to Rs 150 crore. |
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:
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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:
*Yearly escalation of Rs 0.05 from 2nd to 16th year **Yearly escalation of 3% till 10th year
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 70% held by M&M through its 100% subsidiary Mahindra Holdings Ltd, with the balance 30% held by OTPP.
Canada-based OTPP is one of the world’s largest pension plans, with C$249.8 billion in net assets as on December 31, 2023, and presence in over 50 countries. It is jointly sponsored by the Government of Ontario and the Ontario Teachers' Federation. [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 |
Key Financial Indicators
* Past financial data is not available as the company has recently been registered |
Any other information: Key covenants of the existing debt (Rs 3,400 crore term loan)
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Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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