India Ratings Assigns Vena Energy Solar Ravi’s Rupee Term Loan ‘IND AA-’/Stable; Withdraws Existing Facility

India Ratings and Research (Ind-Ra) has assigned Vena Energy Solar Ravi India Power Resources Private Limited’s (VESRIPRPL) term loan an ‘IND AA-’ rating with a Stable Outlook. The detailed rating actions are as follows:

*The agency has withdrawn the ratings of earlier term loan on the receipt of no-dues certificates from the lenders and the new facility was utilised to completely pay off the previous outstanding term loan.

The rating reflects VESRIPRPL’s low revenue risk profile due to its firm offtake arrangement for the entire capacity of 100MW for 25 years from the commercial operations date (COD). The rating is underpinned by the sustained project performance, the presence of a revolving letter of credit (LC) equivalent to one month’s average billing from the offtaker, a stable and favourable receivable position and superior liquidity. Furthermore, VESRIPRPL has a strong debt service coverage ratio (DSCR) and is resilient to moderate operational stresses.

KEY RATING DRIVERS

Firm Offtake Agreement; Strong Counterparty: VESRIPRPL has a strong revenue profile, given its 25-year power purchase agreement (PPA) with Solar Energy Corporation of India (SECI) at a fixed tariff of INR4.43/kWh. SECI is considered a strong counterparty, given it is a central government-owned public sector undertaking and has support in terms of providing the viability gap funding (VGF) and the maintenance of payment security fund, among other reasons. SECI continues to be a leading agency in executing the renewable energy plans of the country, and as an intermediary between distribution companies and generating companies, it provides critical comfort regarding counterparty risk.

Establishment of LC by Offtaker; Favourable Receivable Position: The project is receiving payments from SECI generally within 14 days of raising the invoice since April 2019 (a significant improvement from 75 days in FY19). Ind-Ra expects continued regular payments from SECI over the near term. The PPA provides for a payment security mechanism in the form of a revolving LC from SECI – equivalent to one month’s average billing, and accordingly an LC was established by SECI in February 2020. The presence of such a payment security mechanism provides comfort to the rating.

Operational Performance in line with Base Case Estimates: VESRIPRPL has established a stable operating track record of around 30 months with the project generating power at an average net plant load factor (PLF) of 23.68% since the COD. The plant’s monthly machine and grid availability have been consistently at around 98% since COD. These performance metrics exclude the outage period (August-November 2019) during which the project faced evacuation line issue.

Experienced Sponsor: The project’s ultimate sponsor Vena Energy Group is a large, independent renewable energy company in the Asia-Pacific region with over 11GW of projects in operation and under construction. In India, the group has 614MW of operational renewable assets spread across Andhra Pradesh (154MW), Karnataka (146MW), Madhya Pradesh (134MW), Telangana (100MW), Gujarat (50MW) and Maharashtra (30MW) and 157MW of projects under construction

Liquidity Indicator- Superior: The project had created a debt service reserve (DSR) of INR317 million as on 8 December 2020 out of total required INR350 million (i.e. six months of debt servicing obligation). The management has indicated that the remaining portion will be created within the stipulated timeline. Furthermore, the project had a cash balance of INR250 million in the trust and retention account as on 30 November 2020. Although the project’s cash balance could be distributed post the compliance of restricted payment conditions, the presence of liquidity in addition to the DSR provides comfort. VESRIPRPL has confirmed that additional liquidity equivalent to three months of debt servicing obligation will be generally maintained in the project accounts. The project did not avail the Reserve Bank of India-prescribed moratorium on loans over March-August 2020.

Minimal Operating Risk: The operations of solar projects are of low complexity. VESRIPRPL has signed a fixed-price, lumpsum contract with Juwi India Renewable Energies Private Limited. The project’s operations and maintenance price compare favourably with its Ind-Ra-rated peers.

Low Technology Risk: Given the demonstrated operations of the solar plant till date, the technology risk is considered low. VESRIPRPL uses polysilicon solar panels manufactured by JA Solar Holdings Private Limited, which has exhibited high reliability and stable performance through the years. JA Solar Holdings has provided a 10-year product warranty and a 25-year power output warranty.

Financial Performance:  The company’s operational revenue declined to INR744.7 million in FY20 (FY19: INR836.7 million) due to the evacuation line issue. However, the total revenue was unaffected with INR893 million in FY20 (FY19: INR868.6 million) due to the receipt of insurance claims. According to the provisional annual report, there were no contingent liabilities as on 31 March 2020. FY20 numbers are provisional in nature.

Debt Refinancing; Extended Loan Tenor: VESRIPRPL refinanced the earlier loan in October 2020 with variations in the key transaction terms, including those related to the tenor, interest rate and repayment schedule. Basis the common loan facility agreement dated 1 October 2020, VESRIPRPL has raised a project bank loan of INR4,750 million to settle previous term loans outstanding and repay some part of the sponsor-held non-convertible debentures.

Moderate Debt Structure: The refinanced loan has a tenor of 17 years and is repayable in 68 quarterly instalments ending September 2037. The financial covenants are DSCR of not less than 1.15x, the ratio of total debt to total net worth less than 3.25x and the total asset cover not less than 1.15x.

VESRIPRPL has non-convertible debentures and compulsorily converted debentures totalling INR440 million and INR1,309 million, respectively. According to the financial stipulations, these instruments are subordinated debt and stand at par with equity with no rights to call an event of default. The shareholder distribution, including any payment towards servicing these subordinated instruments, shall be subjected to compliance with restricted payment conditions.

VGF Support for Solar Project: SECI provides a VGF support of INR7,350 million to VESRIPRPL, to be released in six tranches. According to the VGF securitisation agreement, the first tranche of 50% will be released upon the project achieving COD and the balance 50% is to be released progressively over the next five years in equal instalments of 10% each. Ind-Ra observes a delay of around a year in the receipt of VGF with the first and second tranche being received in November 2019 and September 2020, respectively. However, the risks emanating from the delay is minimal since the new amortisation schedule has factored in the time-lag.

RATING SENSITIVITIES

Positive: The project consistently performing above P90 estimates with an average DSCR above 1.35x could lead to a rating upgrade.

Negative: The below developments could, individually or collectively, lead to a negative rating action:

– PLF significantly lower than P90 estimates

– the depletion of the DSR account
– forward-looking average DSCR below 1.2x

COMPANY PROFILE

VESRIPRPL operates a 100MW solar power project in Belgaum, Karnataka. The project was developed at a cost of INR6,590 million, funded in a debt-equity ratio of 70:30. The project was completed on 28 March 2018.

FINANCIAL SUMMARY

RATING HISTORY

COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instrument, please visit https://www.indiaratings.co.in/complexity-indicators

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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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.co.in