India Ratings Affirms ACME Jaisalmer Solar Power’s Bank Facilities at ‘IND BBB-(CE)’/Negative – EQ Mag Pro
India Ratings and Research (Ind-Ra) has taken the following rating actions on ACME Jaisalmer Solar Power Private Limited’s (AJSPPL) instruments:
- Ind-Ra has also affirmed an unsupported rating of ‘IND BBB-’/Negative for the same amount and maturity, in compliance with the Securities Exchange Board of India’s circular dated 13 June 2019, which requires credit rating agencies to disclose unsupported ratings without factoring in the explicit credit enhancement (CE) and supported rating after factoring in the explicit CE.
Analytical Approach: To arrive at the ratings, Ind-Ra continues to take into consideration the cash flow support available to AJSPPL from four other projects (all with debt rated at ‘IND BBB-(CE)’/Negative), namely – Niranjana Solar Energy Private Limited, Dayanidhi Solar Power Private Limited, Aarohi Solar Private Limited and Vishwatma Solar Energy Private Limited – under the obligor co-obligor structure. All the five projects are fully owned by ACME Solar Holdings Limited.
These projects also have compulsorily convertible debentures (CCDs) and interest free unsecured loans of INR1,887.6 million at a combined level. These instruments are equity-like in nature, as per transaction documents and the terms and conditions shared by the management.
These are subordinated to the senior debt and will be paid off only after all restricted payment conditions of the senior term loan are met and have no right to call an event of default. The waterfall arrangement also delineates the subservient nature of sponsor debt obligations. Ind-Ra has not factored in any payments to these junior instruments for arriving at senior debt coverages. The inclusion of these funds into the senior debt category will impact the ratings.
The Negative Outlook reflects the uncertainties around the resolution of tariff dispute between the government of Andhra Pradesh and wind and solar power producers and the projects utilising their debt service reserve (DSR) at various instances due to reduced liquidity.
The project continues to receive payments from the off-taker at a reduced interim tariff of INR2.44 per unit, as compared to the contractual levelised tariff of INR6.97 per unit. The ratings are constrained by the severe delays in the receipt of payments from the off taker.
The rating affirmation reflects the continued sponsor support to the project to support cashflow mismatches as a result of the delays in the payments from Andhra Pradesh Southern Power Distribution Company Limited (APSPDCL). The timely and adequate sponsor support for debt servicing and the realisation of payments by the counterparty at full tariff and a healthy plant load factor (PLF) performance remains a key rating monitorable.
KEY RATING DRIVERS
Continued Payment at Lower Provisional Tariff: In April 2021, APSPDCL cleared six months’ pending dues till December 2020 at an interim tariff of INR2.44/kWh (contractual tariff: INR6.97 per unit) for the period August 2018 to December 2020, thereby straining the liquidity. The full tariff realisation at contractual power purchase agreement rates remains a key rating monitorable for Ind-Ra.
High Counterparty Risk: The adjusted gap between the revenue realised and the average cost of supply for APSPDCL for the UDAY grant was INR0.29/kwh for FY20. However, due to the approved Ujjwal DISCOM Assurance Yojana (UDAY) grant to fund the prior losses and increased tariff, there was no gap between the average revenue realised and the average cost of supply for APSPDCL in FY20 (FY19: INR1.85/kWh).
APSPDCL’s already high payable days increased to 287 in FY20 (FY19: 199). Ind-Ra believes the uncertainties in payments will persist in cases where a discom reports a significant gap between the average revenue realised and the average cost of supply and high payable days, as in the case of APSPDCL. Additionally, APSPDCL is highly dependent on the subsidies received (around 19% consumer subsidies and around 5% grant under the UDAY scheme) from state governments, according to the report Performance of State Power Utilities 2019-20 by Power Finance Corporation Limited. Ind-Ra believes the long-term turnaround of the state discom will be possible only after a sustained improvement in its operational and financial performance.
Liquidity Indicator – Poor: The project has a moderate average accrual DSCR of 1.20x throughout the loan tenor. The project will not be able to service its existing debt obligations, if it continues to receive revenues at an interim tariff of INR2.44 per unit throughout the tenor of loan for the structure. The project utilised its DSR at various instances over the seven months ended June 2021. On 31 May 2021, all the five projects in the pool had an overall liquidity of INR578.4 million (equivalent to about five months of annual debt service requirement) in the form of two months’ equivalent DSR and unutilised working capital of INR266 million.
All the projects have combined working capital facilities of INR680 million, which was about 61% utilised as on 31 May 2021. The structure’s cash sweep and cash trap mechanism, in case the DSCR in a year is below a particular level, has not been exercised since July 2018. Any further dip in the liquidity and or DSR and a lack of timely sponsor support will lead to a negative credit trigger.
Moderate Operational Performance: The project’s PLF improved to 21.30% in FY21 (FY20: 21.08%), due to the resolution of grid curtailment issues in Andhra Pradesh from July 2020. The reported PLF in FY21 was close to P90 level. Any significant dip in generation levels from the current levels will have a bearing on the rating.
Timely Sponsor Support in the Past: The sponsor provided a support of around INR408.6 million and INR350 million, in the form of subordinated interest free unsecured loans, in FY20 and FY21, respectively, to all the five projects combined in the obligor-co-obligor structure. However, Ind-Ra believes the projects will need continued and timely sponsor support if they continue to receive payments at a reduced tariff level.
Fully Tied-up Project Capacity: The project has a 25-year PPA with APSPDCL for the entire plant capacity of 20MW at a levelised tariff of INR6.97/kWh. Furthermore, the ratings are supported by the must-run status for renewable energy projects that exempts them from the merit order system. However, the sale contract does not carry any deemed generation compensation in the event of an occurrence of grid curtailment. Also, developments regarding the efforts by the state government to reduce the project’s tariff are a key monitorable.
Minimum Technology Risk: The plant is configured with thin film technology-based silicon modules manufactured by BYD Solar and Talesun Solar. The presence of a tier-1 solar panel supplier and industry standard warranties mitigate the technology risk to a large extent.
Obligor Co-Obligor Structure Mechanism: Excess cash with any of the other four co-obligor entities can be used for debt servicing or for the creation of a debt service reserve account for any of the other four entities in the event of a shortfall, according to the defined waterfall mechanism.
Ind-Ra has evaluated the projects based on the standalone project cash flows and not consolidated the cash flows, since fund movement across projects is possible only from the surplus account. As there is no surplus cash flow available from the other four projects to ASPL due to low provisional tariff and delays in payment from the off taker, any notch-up in ratings due to the available support at the whole structure level is redundant till the time the tariff issue is resolved and timely payments are restored.
Moderate Debt Structure: Structurally, the project has a moderate-tenor amortisation profile; the RTL is repayable over 70 structured quarterly instalments ending FY36 while the ECB is repayable in 65 structured quarterly instalments between 31 March 2017 and 31 March 2033.
Both interest rate and forex risks, under the ECB facility, are fully hedged through swap agreements under the LER hedging facility till September 2022. The interest rate is floating and is payable on a monthly basis under both the facilities. AJSPPL had availed the Reserve Bank of India-prescribed moratorium for its rupee term loan over March-August 2020.
As a result, as per the lead lender, the principal repayment has been deferred by two quarters. Furthermore, the accrued interest payable during the moratorium period has been carved out as a sperate term loan and is to be paid in 65 equal instalments. This has led to the RTL’s amortisation schedule being stretched to 72 quarters from 70 quarters earlier. This has been considered for the base case analysis; any change affecting the coverage ratios is a rating sensitivity.
The financial documents stipulate a DSR equivalent to two quarters of debt servicing for both RTL and ECB. The documents also stipulate the creation of other reserves such as one quarter operations and maintenance reserve before making any restricted payments, an inverter replacement reserve (only in case the annual maintenance contract (AMC) for inverters is not issued) before seven years of the first disbursement and a hedging reserve; however, the same have not been created due to unavailability of funds.
Moderate Operating Risk: The project has a 25-year operation and maintenance agreement with ACME Cleantech Solutions Private Limited for an agreed price with a fixed annual escalation. The project sponsor has an experience of more than a decade in operating solar capacity of over 2.35GW.
Ind-Ra considers the project’s operating risk to be low due to the low complexity involved in operating and maintaining solar projects coupled with the ACME group’s long track record in the same field. The operating cost for FY21 was INR0.59 million/MW (FY20: INR0.91 million/MW), in line with other Ind-Ra rated peers. Considering the operating cost is a key factor for the debt service coverage, any sustained increase in operating expenses could lead to a rating downgrade.
Moderate Financial Performance: AJSPPL’s operating revenue improved to INR232.7 million in FY21 (FY20: INR224.1 million) as a result of improved generation, due to the resolution of grid curtailment issues. The total operating profit also increased to INR224.3 million in FY21 (FY20: INR209.8 million) on account of increased revenue.
RATING SENSITIVITIES
Positive: The Outlook will be revised to Stable on the resolution of the tariff issues with APSPDCL and when the receivables, at the pooled level, fall below 120 days.
Negative: Future developments that could, individually or collectively, lead to a rating downgrade are:
• the project’s financial and operational performance being below the base case estimates for a sustained period of time with a forward-looking average DSCR below 1.10x
• the revenue realisation at provisional tariff for six more months with continuing uncertainties in the APSPDCL tariff issue
• dipping into DSR and a decline in the internal liquidity of the project to less than three months
• the lack of timely support from the sponsor for debt servicing
• deterioration in the credit profile of the sponsor
• deterioration in the credit profile of the counterparty
COMPANY PROFILE
AJSPPL is a wholly owned subsidiary of ACME Solar Energy Private Limited, which is ultimately held by ACME Cleantech Solutions. The holding is in the form of common equity shares and CCDs.
Ind-Ra has given 100% equity treatment to the debentures, according to the terms and conditions shared. AJSPPL operate a 20MW (AC) solar power plant in Pattikonda, Andhra Pradesh. A total 25.3MW of DC capacity is installed against the said AC capacity in a DC:AC ratio of 1.27:1. AJSPPL commenced full commercial operations on 12 May 2016.
FINANCIAL SUMMARY
RATING HISTORY
ANNEXURE
Key Financial Covenants and Terms:
COMPLEXITY LEVEL OF INSTRUMENTS
ABOUT INDIA RATINGS AND RESEARCH
About India Ratings and Research: India Ratings and Research (Ind-Ra) is India’s most respected credit rating agency committed to providing India’s credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India’s fixed income market.
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Source: indiaratings
