Rating Rationale
March 28, 2022 | Mumbai
Terra Asia Holdings II Pte. Limited
'CCR AA/Stable' assigned to CCR
 
Rating Action
Corporate Credit RatingCCR AA/Stable (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CCR AA/Stable’ rating to Terra Asia Holdings II Pte. Limited (Terra). 

 

The rating reflects the company’s healthy financial flexibility, derived from the strength of its investments in the group’s renewable energy infrastructure investment trust (InvIT) – Virescent Renewable Energy Trust (VRET; CRISIL AAA/Stable) and no external borrowing. The rating also factors in Terra’s articulation confirming that the company does not plan to undertake any external borrowing. Any investment and other cash flow requirement shall be met by capital infusion from the parent company and not through external borrowings. This strength is partially offset by subordination to VRET’s external senior lenders (detailed waterfall provided subsequently) for distribution of surplus cash flow from VRET to Terra as per the waterfall mechanism.

Analytical Approach

CRISIL Ratings has followed the holding company approach for analysing the credit risk profile of Terra, based on investment in its operating companies –VRET (77.11% held by Terra) and Virescent Investment Manager Pvt Ltd (VIIMPL). Terra does not plan to invest in any other entity in future.

Key Rating Drivers & Detailed Description

Strengths:

  • Strength of investment in VRET

Terra is likely to receive steady cash flow from its stake in VRET (renewable energy InvIT sponsored by Terra) in the form of interest, dividend and principal repayment. The cash flow is expected to be sufficient to meet Terra’s operational fund requirement.

 

Furthermore, VRET’s strong and diverse portfolio, along with a well-defined strategy to achieve operational capacity of 1.5-2.0 Gigawatt peak by fiscal 2024 provides comfort on the stability of the cash flow being generated from VRET. It will be supported by a strong counterparty profile with at least 55% of earnings before interest, tax, depreciation and amortisation (EBITDA) contribution from central counterparties and Gujarat Urja Vikas Nigam Limited. The regulation requires distribution of at least 90% of the net distributable cash flow (NDCF) from special purpose vehicles (SPVs) to InvIT and 90% of the InvIT’s NDCF to unitholders. This adds to the strength of the cash flow. However, a limited dividend distribution history constrains the rating. VRET has distributed around Rs. 240 cr over through 2 distributions (around Rs. 88 cr in November 2020 and balance in February 2021) since the unit allotment for VRET on September 29, 2020.

 

VIIMPL provides management services to VRET, for which it charges management fees of 110% of actual costs incurred (as specified in VRET’s placement memorandum) and its SPVs. Furthermore, VIIMPL is also debt free and does not plan to avail any external borrowing in the future. Considering the strength of VRET and its SPVs, VIIMPL is not expected to require any support from Terra.

 

  • No external borrowing

Terra does not have any external borrowing and the company has confirmed that none of its stake in group companies is encumbered. Furthermore, the company has also confirmed that investment and other cash flow requirement, if any, will be met through funding from the parent company and not through external debt. The interest-free loan from the parent company does not have any contractual debt servicing. Any deviation in this understanding will be a rating sensitivity factor.

 

Weakness:

  • Subordination of right over cash flow from VRET as per the waterfall mechanism

Terra’s right over VRET’s cash flow will be subordinated to that of external lenders of VRET and will be available for upstreaming after meeting all the debt servicing and reserve requirements of these lenders. However, this is partially mitigated by the strong credit profile of VRET with adequate liquidity cushion.

Liquidity: Strong

Terra had cash balance of about USD 1 million as on March 15, 2022. The company does not have any debt obligation and the cash generated will be sufficient to cover the company’s expenses. At the current level of assets, annual cash flow upstreaming of around Rs. 130-140 crore is expected from VRET to Terra going forward.

Outlook: Stable

CRISIL Ratings believes that the credit profile of Terra is supported by absence of external borrowing and high value of investments in key operating entities of Terra. Further, it is expected to enjoy strong financial flexibility through stable cash inflows from VRET.

Rating Sensitivity factors

Upward factors:

  • Significant and sustainable increase in cash flow upstreaming from VRET to Terra

 

Downward factors:

  • External borrowing or encumbrance or stake sale in underlying assets
  • Weakening of the credit profile of underlying assets and/or unexpected support requirement to these assets from Terra

About the Company

Terra is an affiliate of KKR and a 100% subsidiary of Terra Asia Holdings I Pte Ltd and is the sponsor of VRET. It was incorporated on January 6, 2020 and holds 77.11% stake in VRET, which directly or indirectly owns various operational solar projects.

About KKR

Terra is an affiliate of Kohlberg Kravis Roberts & Co. LP (KKR). It is mandated to invest in renewable assets of India. 

 

KKR is a leading global investment firm that offers alternative asset management, and capital markets and insurance solutions with approximately USD 471 billion of assets under management as of December 31, 2021. KKR sponsors investment funds that invest in private equity, credit and real assets, and has strategic partners that manage hedge funds.

 

KKR, through its Asia infrastructure fund, has invested in India Grid Trust (transmission InvIT), Virescent Infrastructure (renewable energy platform in India) and Highway Concessions One (roads platform) in India

Key Financial Indicators:

As on/ For the year ended December 31

 

2021 Provisional

2020 Audited

Operating Income

USD million

76

28

Profit after tax (PAT)

USD million

72

-6

PAT margin

%

95

-2011.9

Adjusted gearing

Times

-

-

Interest coverage

Times

-

-

 

Any other information:

Cash flow waterfall of VRET:

After meeting their own statutory , O&M and reserves and other external obligations as defined in the terms of VRET’s external  borrowings, VRET’s SPVs will transfer an amount equivalent to principal and interest due (including overdue, if any) to VRET, and in any case, to the extent of minimum transfer required as per SEBI Guidelines or more for satisfactory debt/ interest servicing of the Facility and in line with SPV & Issuer distribution policy

 

All cash flows from SPVs (subject to waterfall at the SPV level for any senior debt or working capital of the SPV (as permitted herein) shall be credited into the Escrow Account. of the Issuer maintained with Escrow Bank. All proceeds lying in the Escrow Account of the Issuer would be subject to the waterfall mentioned below:

 

1. Revenue Account

2. Statutory Dues and O&M Expenses Sub-Account

3. Debt Service Payment Sub-Account

4. ISRA/DSRA Sub-Account

5. Cash Trap Sub-Account

6. Distribution Sub- Account (to be upstreamed to unitholders)

 

Fund lying in the Escrow Account including all sub accounts can be invested in Permitted Investments.

 

Repayment of working capital (if drawn) shall be done compulsorily prior to payment of distributions.

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of Instrument

Date of Allotment

Coupon Rate (%)

Maturity Date

Issue Size (Rs Cr)

Complexity

level

Rating Assigned

with Outlook

NA

NA

NA

NA

NA

NA

NA

NA

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Corporate Credit Rating LT 0.0 CCR AA/Stable   --   --   --   -- --
All amounts are in Rs.Cr.

       

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating holding companies (including debt backed by pledge of shares)
CRISILs Criteria for rating short term debt

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