Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL AA/Stable/ CRISIL A1+’ rating on the bank facilities of Walwhan Wind RJ Limited (WWRL). CRISIL Ratings has withdrawn its ratings on Rs 288 Cr of bank facilities on receipt of no-objection certificate from the bankers. The withdrawal is in line with CRISIL Rating’s policy on withdrawal of bank loan ratings.  

 

WWRL is a wholly-owned subsidiary of Tata Power Renewable Energy Ltd (TPREL; rated ‘CRISIL AA/Stable/CRISIL A1+’). TPREL and WREL, along with all its special-purpose vehicles (SPVs), are referred to herein as the TPREL group.

 

The ratings continue to reflect the TPREL group’s (TPREL and WREL along with all its special-purpose vehicles {SPVs}, renewable assets housed under Tata Power standalone and Tata Power Solar System Ltd) large portfolio of wind power (~0.95 gigawatt (GW)) and solar power (~ 2.1 GW) renewable assets, well-diversified both in terms of geography and counterparty; and healthy revenue visibility driven by long-term power purchase agreements (PPAs). Additionally, the ratings factor in the operational track record of sizeable portfolio, healthy internal cash generation translating into comfortable consolidated average debt service coverage ratio (DSCR), expected liquidity of around 6 months of debt servicing, and strategic importance and strong financial and managerial support received by the TPREL group from its parent. These strengths are partially offset by exposure to receivables risk, implementation risk for new capacities (1GW), and to risks inherent in wind and solar-powered renewable assets.

Analytical Approach

For arriving at the rating of TPREL homogenous group, CRISIL Ratings has combined the business and financial risk profiles of TPREL, WREL, all of their SPVs, renewable assets in The Tata Power Company Ltd - TPCL (standalone) and renewable assets in Tata Power Solar Systems Ltd, collectively referred to as the TPREL group. This is in-line with CRISIL Ratings’ criteria for rating entities in homogenous groups.

 

The group houses all the wind and solar renewable power assets of TPCL. All the entities under the group are in the same business and have common management and treasury. Furthermore post-debt servicing, excess cash flow would be available for covering any shortfall across the group. Moreover, liquidity is maintained at TPREL and WREL in the form of working capital limit and cash. TPREL has demonstrated a track record of supporting WREL and its SPVs.

 

After arriving at the ratings of the TPREL group, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of distress support expected from Tata Power. The support factors in TPREL’s strategic importance to Tata Power and the strong financial and managerial support provided to TPREL from the parent company.

 

Furthermore, the credit rating of WWRL is equated with the TPREL group’s rating due to the strong financial risk profile of the company in line with that of the group.

 

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:

• Strategic importance to, and strong financial and managerial support from, the parent:

The capital employed in the TPREL group is around one-fourth of the overall capital employed of TPCL, indicating the increasing importance of the renewable business in the overall strategy of the parent. Further, TPCL plans to have 50-60% of its total generation capacity from non-fossil fuel assets over the next 7-8 years. The renewable portfolio provides strong economic incentive and helps diversify risk at the portfolio level. The operational capacity of the TPREL group has progressively grown to ~ 3.05 GW as on January 2022. The parent has provided the necessary support to the TPREL group, reflected in outstanding unsecured perpetual securities of Rs 3,895 crore, as on March 31, 2021. It had also extended corporate guarantee to a part of the debt contracted by TPREL and WREL to refinance their high-cost debt in the past and therefore could do the same in the future as well. Besides, the senior management of Tata Power is present on the board of TPREL and WREL. Given the strategic importance and strong economic incentive, the TPREL group will remain critical for Tata Power. Moreover, management shall adopt a calibrated expansion approach and is expected to receive need-based support from the parent.

 

WREL and Tata Power have provided an unconditional and irrevocable guarantee to the long and short-term bank facilities of WWRL, respectively. The guarantee covers the entire principal and interest obligations. The guarantee on the long-term facilities goes into suspension when the unsupported rating of WWRL improves to the AA category and becomes active when the unsupported rating falls to below the AA category.

 

• Well-diversified portfolio in terms of geography and maturity:

The TPREL group is one of the largest players in the Indian renewable energy space with around 3.05 GW of installed capacity and 1 GW in under-construction projects. The group has a well-diversified proportion of solar-wind power capacity of 70:30 and geographical spread across 12 states. This helps mitigate risk of resource and location-specific generation variability. The operational portfolio is fairly matured, 65% of which has a track record of above 3 years, and nearly 90% having maturity of more than a year. The projects primarily have Tier-I vendors ensuring quality equipment to mitigate technology risk. The well-diversified portfolio with pan-India coverage and established operational track record will continue to support the credit risk profile.

 

• Healthy revenue visibility and low offtake risk combined with robust DSCR:

Around 98% of the operational portfolio has PPAs with a 25-year tenure, while the rest have a tenure of 13-15 years. Furthermore, the weighted average tariff of portfolio is over Rs 5.3 per kilowatt-hour (kWh), leading to healthy overall returns. This lends high predictability and stability to revenue with low demand risk. Consolidated average DSCR for the portfolio is expected to remain robust.

 

WWRL has a long-term PPA of 25 years with Jaipur Vidyut Vitran Nigam Ltd and Jodhpur Vidyut Vitran Nigam Ltd, and has tied up the entire power generated at an average tariff of Rs 6 per kilowatt-hour. This reduces the offtake risk substantially and assures long term cash flow visibility. Generation was constrained before 2018 due to unavailability of transmission line. However, PLF has sustainably improved since. Any adverse movement in the PLF level remains a key monitorable.

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Weaknesses:

• Exposure to moderate receivables risk, mitigated by diversity in counterparties:

Long-term PPAs with distribution companies (discoms) having relatively weaker financial risk profiles and payment track record pose receivables risk. Receivables at a consolidated level for TPREL has improved to 6 months in fiscal 2021 from 7 months in fiscal 2020. As on January 31, 2022, receivables from discoms such as Tamil Nadu (13% of capacity), Andhra Pradesh (8%) and Rajasthan (7%) were at above 6 months. The weak financial health of the state discoms could lead to increased delays in payments, which continues to constrain the standalone credit risk profile of the TPREL group. This risk is mitigated by diversity in counterparties with over 15 discoms and expected liquidity of around 6 months of debt servicing maintained at the group level. TPREL is also resorting to bill discounting to faster realise receivables.

 

WWRL has entered into long-term PPAs with the Jaipur and Jodhpur discoms, both of which have a weak credit risk profile. Timely realisation of dues remains susceptible to health of the counterparty and can significantly impact the debt serviceability. Average collection period stretched beyond 9-10 months over fiscals 2020 and 2021. However, WWRL has an adequate liquidity buffer in form of a debt service reserve account (DSRA) of 2 months, liquid investments of around 4 months and working capital limit equal to 12 months of revenue. It also utilises the bill discounting facility to manage the collection delays.

 

• Exposure to risks inherent in operating renewable assets:

Cash flow of wind power projects is sensitive to plant load factor (PLF), which is entirely dependent on wind patterns that are inherently unpredictable. Several assets in TPREL’s wind portfolio have been underperforming its P90 historically, but the company has been looking to increase the PLF by improving operations and maintenance and machine availability. Also, in case of a solar power plant, generation depends on irradiation levels around a plant’s location and annual degradation of the solar panels. Degradation of solar panels may increase exponentially in the later part of the life of an asset. Though geographical diversity mitigates the risk related to generation, exposure to inherent operational risks related to renewable power assets constrains the rating.

 

• Susceptibility to implementation risk owing to growth plans through organic or inorganic route:

The group remains exposed to project risk with 1GW of capacity under construction. Nonetheless, CRISIL Ratings draws comfort from the group’s track record of execution and calibrated expansion strategy with prudent funding mix. The group is expected to commit substantial funds to a renewable project only if there is a strong visibility on evacuation and PPA.

Liquidity: Strong

Cash and cash equivalents for TPREL stood at Rs 200 crore as on March 31, 2021 while undrawn fund-based lines was Rs 150 crore, as on January 31, 2021. Cash accrual is expected at over Rs 1,200 crore each in fiscals 2022 and 2023, against scheduled repayments of close to Rs 900 crore and Rs 1200 crore, respectively. Any shortfall is expected to be met through refinancing or need-based support from the parent. Capital expenditure (capex) of around Rs 3000 crore, expected over fiscals 2022 and 2023, towards commissioning of close to 1 GW capacity, should be funded through a mix of debt and internal accrual.

Outlook: Stable

The outlook is based on CRISIL's rating outlook on Tata Power’s debt instruments and bank facilities. Any change in the ratings or rating outlook on Tata Power will lead to a corresponding change in the rating or rating outlook on WWRL.

Rating Sensitivity factors

Upward factors:

• Upgrade in the rating of TPCL or TPREL
• Significant reduction in debt

 

Downward factors:

• Downgrade in the rating of TPCL or TPREL
• Larger than expected debt funded capex/acquisition
• Significant deterioration in PLFs or decline in tariffs adversely impacting the project’s or the group’s DSCR

About the Company

WWRL is an SPV and step-down subsidiary of TPREL held through WREL. WWRL has a 126-MW wind power plant in Rajasthan, which was set up at a total cost of Rs 840 crore and commissioned in August 2015. WWRL has entered into a 25-year PPA with Jaipur Vidyut Vitran Nigam Ltd and Jodhpur Vidyut Vitran Nigam Ltd ensuring offtake of the entire power generated at an average tariff of Rs 6 per kilowatt-hour.

 

TPREL, a wholly-owned subsidiary of Tata Power, has an operating capacity of 3.05 GW, as on January 2022.  This includes 2.9 GW renewable capacity from TPREL – consolidated level, 43 MW from Tata Power standalone and 53 MW from other group companies. The consolidated capacity of TPREL group comprises ~0.95 GW wind and ~2.1 GW solar capacity located in 12 states. TPREL has around 1 GW of capacities under construction.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs crore)	Complexity level	Rating Assigned with Outlook
NA	Rupee term loan	NA	NA	Mar-2033	299	NA	CRISIL AA/Stable
NA	Proposed Rupee Term Loan	NA	NA	NA	157	NA	Withdrawn
NA	Working capital facility*	NA	NA	NA	75	NA	CRISIL A1+
NA	Rupee Term Loan	NA	NA	Mar-2033	131	NA	Withdrawn

*Bill discounting; includes sublimit of 1 cr of overdraft facility