| Virescent Renewable Energy Trust | ||||||||
| Rating Reaffirmed | ||||||||
| 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 reaffirmed its ‘CRISIL AAA/Stable' rating on NCDs of Virescent Renewable Energy Trust (VRET) worth Rs 1,850 crore.
CRISIL Ratings has noted the development regarding the proposed acquisition of 23 MW AC operational solar project by Godawari Green Energy Private Limited (“GGEPL”), a 100% subsidiary of VRET, at an enterprise value of Rs. 140 crore as on the valuation date, subject to balance sheet and other adjustments. The project is in Surendranagar district of Gujarat and is currently owned by Samta Energy Pvt. Ltd. The ratings factor in the proposed acquisition of the asset based on enterprise value of around Rs 140 crore (as on the valuation date, subject to balance sheet and other adjustments) and additional leverage proposed to be taken for the acquisition. The ratings also factor in further additional leverage proposed to be taken for incurring capex in one of the existing assets of VRET to improve the operational performance. The debt servicing cushions are expected to remain healthy even after the proposed additional leverage. Any leverage higher than the expected leverage will be a rating sensitivity factor. Power generated from this asset is tied up with Gujarat Urja Vikas Nigam Ltd (GUVNL). The acquisition, likely to be completed shortly post receipt of all relevant governmental or regulatory approvals, will help diversify the portfolio of the trust.
The ratings reflect healthy revenue visibility stemming from long-term power purchase agreements (PPAs), healthy generation track record and strong financial risk profile, marked by low leverage and healthy adequate liquidity. These strengths are partially offset by exposure to risk related to receivables from state distribution companies (discoms) and those inherent in operating renewable assets. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of all renewable assets under VRET, cumulatively adding up to a capacity of ~538.5 megawatt-peak (MWp). This is in line with the criteria for rating entities in homogenous groups. CRISIL Ratings has also combined the business and financial risk profile of the renewable asset of 25.0 MWp, which VRET is expected to acquire shortly. The acquisition will strengthen the counterparty profile.
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 portfolio benefits from diversified presence across seven states and at different locations within these states. This reduces generation risk, as reflected in plant load factor (PLF) that has consistently exceeded or has been broadly in line with the P90 value at the portfolio level; PLF in fiscals 2020 and 2021 was broadly in line with P90 PLF of around 16.5%. The PLF stood at 16.4% in fiscal 2022, despite inverter and transformer issues in few assets and lower irradiance, amidst heavy rainfall in Maharashtra. The inverter and transformer issues have now been resolved. For 9 months FY23, the weighted average PLF of the current portfolio is marginally better than 16.4%.
Additionally, power generated from the portfolio is tied up via PPAs with seven counterparties. Around 93% of the portfolio is covered by PPAs with a pre-determined tariff for tenure of 25 years. The balance capacity has been tied up for 12 years from the commercial operations date. This provides revenue visibility, minimizes offtake risk and ensures steady cash flow.
VRET plans to grow the portfolio to 1.5-2 gigawatt peak, with almost 80% solar assets by fiscal 2024. This should enhance portfolio diversity in terms of location as well as counterparties, with nearly 55% (by fiscal 2024) comprising central counterparties and Gujarat Urja Vikas Nigam Ltd (GUVNL). For the remaining 45%, healthy diversity is expected, with share of weaker counterparties that have sizeable receivables period being restricted to 20% within a similar time frame. Until fiscal 2024, projects with strong counterparties (mentioned above) are expected to remain above 40% of earnings before interest, tax, depreciation and amortisation (EBITDA), with any breach triggering a cash trap, to be released upon achieving the target. If this condition is breached for three successive quarters, the surplus cash trapped shall be used for partial redemption of the NCDs.
The financial risk profile is likely to be healthy on account of low leverage and should ensure a healthy average debt service coverage ratio (DSCR) over the tenure of debt. The DSCR will be supported by fixed coupon rate for the existing NCDs.
Debt facilities have bullet instalments of three years, five years, seven years, seven years and four months, ten years, three years, three years and seven years respectively. Refinancing risk is low given the healthy business and financial risk profiles of the portfolio. Business risk profile is marked by a well-diversified portfolio (in terms of location and counterparty) and operational track record. The financial risk profile is supported by the long tenure of PPAs, with remaining weighted average life of around 17 years, which stretch beyond bullet payments. Moreover, binding term sheet for refinancing of each bullet shall be in place prior to maturity of each tranche (stipulated timeline for binding term sheet prior to 3-9 months before maturity, depending on the tenure of the respective tranche).
The financial risk profile is also supported by an upfront cash debt service reserve account (DSRA) covering six months of debt obligation. Upfront additional liquidity through six months of working capital (funding to the extent of 75%) has also been stipulated under the terms, for which the trust has received a sanction letter. The trust will build additional liquidity of three months if weighted average receivables exceed 12 months.
Planned expansion of the portfolio should improve the leverage; however, the portfolio will benefit from the large scale and diversity. CRISIL Ratings shall closely monitor leverage levels, and any material increase in leverage, weakening the DSCR against expectation, will be a rating sensitivity factor.
Weaknesses:
Long-term PPAs with discoms having relatively weak liquidity and payment track record pose risks related to receivables, as reflected in receivables as high as 22-24 months in fiscal 2021, for the Tamil Nadu assets (capacity of 148 MWp). As on June 30, 2022, receivables from Tamil Nadu Generation and Distribution Corporation Ltd (TANGEDCO) came down to around 10 months (excluding disputed receivables above 19% PLF, and those without adjustment of two months advance received from TANGEDCO). TANGEDCO has subscribed to the LPS scheme under which all the receivables upto March 2022 are to be cleared by TANGEDCO in 48 EMIs, out of which 6 EMIs have been received by VRET till January’23. Additionally, the payments for the generation from April’22 onwards are being done by TANGEDCO in ~90 days. As on December, 2022, the receivables from TANGEDCO stands at around 9 months.
Cash flow of solar projects remains sensitive to PLF, which depends on solar irradiation and hence, is inherently unpredictable. Solar assets are also susceptible to annual degradation of solar panels, which may increase exponentially in the later part of an asset’s life. |
Liquidity: Superior VRET is expected to report healthy cash accrual of over Rs 465 crore in fiscal 2024, sufficient to meet debt obligation (as per the terms) of about Rs 260 crore. Liquidity is supported by a DSRA equivalent to six months (in the form of fixed deposit) of debt obligation. The trust has additional liquidity in the form of working capital loans of six months of receivables (funding to the extent of 75%) to mitigate cash flow mismatch, arising from a stretch in receivables from counterparties. |
Outlook: Stable VRET will continue to benefit from performance of the underlying assets, long-term PPAs and diversity in projects. |
Rating Sensitivity factors Downward factors
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About the Trust Kohlberg Kravis Roberts & Co LLP (KKR) and its affiliates set up VRET, an infrastructure investment trust, in fiscal 2021; the trust has issued NCDs listed on the Bombay Stock Exchange. VRET houses renewable energy projects in India. It has a portfolio of ~538 MWp and is acquiring an additional project of 25 MWp. The units were listed on the National Stock Exchange in October 2021.
Virescent Infrastructure Investment Manager Pvt Ltd (VIIMPL) is a renewable energy platform backed by KKR and incorporated in August 2020. Headquartered in Mumbai, VIIMPL is the investment manager for VRET.
KKR is a leading global investment firm with USD 496 billion of assets under management as on December 31, 2022. |
Key Financial Indicators (Consolidated)*
* VRET units were allotted in the 3rd quarter of fiscal 2022 |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure - List of Entities Consolidated
^ Proposed acquisition |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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