| AVP Powerinfra Private Limited | ||||
| Rating placed on ‘Watch Positive’ | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its rating on the long-term bank facilities of AVP Powerinfra Private Limited (APPL; part of the Renew Power group) on ‘Rating Watch with Positive Implications’.
The rating action follows announcement that Renew Power Private Limited (Renew Power) has entered into a definitive business combination agreement with RMG Acquisition Corporation II (RMG II). Post this merger, Renew Group will be publicly listed on NASDAQ. The transaction is expected to close in the second quarter of current year 2021, subject to approvals. The transaction is likely to provide preliminary proceeds of around US$ 700 million to Renew Power group which will be used to support group’s growth strategy and pay down debt along with transaction expenses.
The ratings have been placed on watch with positive implications since the transaction is likely to improve financial profile of Renew Power group through leverage reduction and increase in financial flexibility. CRISIL Ratings will resolve the watch post getting clarity on SEC approval and information around operational performance, liquidity philosophy and proportion of proceeds used for debt reduction and group philosophy around leverage.
The rating continues to reflect benefits derived from being part of the Renew Power group, given the group’s strong market position, healthy financial flexibility, and track record of equity raising. These strengths are partially offset by exposure to project implementation risks, an average financial risk profile due to increase in leverage and receivables, and exposure to risks inherent in operating renewable energy assets. |
Analytical Approach For arriving at its rating, CRISIL has combined the business and financial risk profiles of Renew Power and all its special purpose vehicles (SPVs). That’s because all these companies, collectively referred to as the Renew Power group, have significant business, financial, and managerial linkages, are in the same business, and have common management and treasury teams. Renew Power has an established track record of supporting the group entities and has also articulated continued support to them. Please refer table 1, which captures the list of entities considered part of Renew group (based on March 2020 annual report).
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:
All the SPVs of the group are likely to receive strong managerial and financial support from the Renew Power group. The management extends support on case to case basis on project debt of SPVs in the initial stage and providing financial support to all if there are any cash flow mismatches after commissioning the projects. Renew Power is likely to maintain adequate liquidity to meet any exigency. Any change in the group's support philosophy is a key rating sensitivity factor.
The strong market position is driven by size, diversity, vintage, and healthy revenue visibility of the asset portfolio. The group is the largest renewable energy player in India with a portfolio of around 10 GW gigawatt (GW; including capacity under construction and under development), with commissioned capacity of 5.66 GW with 51% wind and 49% solar projects as of Dec 2020, project mix post implementation of pipeline projects would be 51% wind and 49% solar
The group had a commissioned capacity of around 5.66 GW as of September 20. Commissioned projects of around 5.2 GW had more than one year of operational track record as of Dec 20. The group portfolio has diversified projects in terms of location and counterparty. The assets are present in eight states: Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh and Karnataka. These assets have strong revenue visibility, with around 80% of the portfolio having power purchase agreements (PPAs) of long tenure of 25 years at pre-determined tariffs with over 15 state and central counterparties.
The group has a sound track record of raising funds in Indian and overseas debt and capital markets. Additionally, it maintains adequate liquidity as indicated by an unencumbered cash balance of over Rs 2100 crore on a consolidated basis as of Sept 20. Additionally, the company has fund based working capital lines of above Rs 2000 crores as of November 2020 crores at Renew group level. The group also has a stated policy of keeping liquidity buffer of at least Rs 1,500 crore, apart from project level debt service reserve accounts (DSRAs), on an overall portfolio basis.
The group has a range of marquee investors including Goldman Sachs and Canadian Pension Plan Investment Board, many of which have infused capital in progressive rounds. Growth has been supported by fund infusion of over Rs 10,000 crore since 2012, including equity infusion of USD 300 million (around Rs 2100 crore) in the first half of fiscal 2020. This demonstrates the capability to raise adequate capital ahead of planned investments. Adequate funds through further equity raises are expected to be available support future growth plans.
Weaknesses:
The counterparties are state distribution companies (DISCOMs), several of which have weak credit risk profiles. Although the receivable days shot up to 195 days as of March 2020, on account of increase in payment delays by some state DISCOMs including those in Andhra Pradesh, Rajasthan and Maharashtra, these have started to improve, but still high at ~170 days as of September 2020 (based on CRISIL revenue expectation in fiscal 2021). These are further expected to correct to ~150 days by March 2022 against 160 days expected in March 2021 but delays in correction of the payment cycle from these state DISCOMs would put stress on overall cash flows and expected group liquidity and thus will be a rating sensitive factor.
The consolidated debt as on March 31, 2020, was Rs 29,106 crore (Total debt of Rs 30032 crores adjusted for hedged assets of Rs 926 crores). The debt coverage ratio of project-level debt has remained at similar levels as previous expectation, with the blended average DSCR to around 1.25 times[1] as on March 31, 2021.
The expected correction in leverage measured through total debt/EBITDA ratio will be slower than earlier expected in fiscal 2021 as the debt will remain higher to provide liquidity support due to payment delays by counterparties. CRISIL believes that the receivable days should improve by March 2021 to ~160 days on account of no further stretch expected from DISCOMs. Delays in this leverage correction to below 6.7 times by March 2021 will be a rating sensitive factor. However, the proposed transaction mentioned above is expected to improve the metric going forward.
The group had about 4.73 GW of under-construction projects as of September 20, which face implementation risk. However, the risk is mitigated by the quality of suppliers and the group's demonstrated track record of project execution.
Cash flows of renewable power projects are sensitive to PLF, which depend entirely on wind and solar patterns that are inherently unpredictable. This was evident through weaker than P90 performance of solar portfolio in fiscal 2020, with 80% of portfolio (around 1.4 GW having achieved operations before March 2019) performing below P90 PLF expectations, performance of wind portfolio in April to September 2020. Improvement in performance of portfolio with respect to P90 projections going forward shall be a monitorable. [1] For the assets, where CRISIL does not have visibility of the debt quantum, debt tenure and other operational details, it has assumed the tenure of the debt based on a tail period of 2 years for the assets and sculpted amortisation as CRISIL believes that Renew Power group would be able to refinance the debt based on its strong business risk profile. Further, CRISIL-sensitised projections of cash flows are at a weighted average P90 PLF of around 27% for operational wind portfolio and around 20% for operational solar portfolio. |
Liquidity: Adequate The liquidity for Renew group is expected to be adequate, driven by expected cash accruals of around Rs 1850 crore in fiscal 2021 and Rs 2050 crore in fiscal 2022, and cash and cash equivalents of more than Rs 3900 crore as of September 2020. The company has long term repayment obligations around Rs. 2190 crore in fiscal 2021 and Rs 3990 crore in fiscal 2022 (out of this refinancing for Rs 3180 crores masala bond has already been tied up). CRISIL understands major portion of these repayments would be met through refinancing by longer tenor debt instruments (bullet payments for projects having long life and tied up PPAs). The company also has investment requirements (as per CRISIL expectation) of around Rs. 1700 crore in fiscal 2021 and around Rs 2300 crore in fiscal 2022 in its subsidiaries which will be managed by utilizing cash balances and accruals.
All operational project SPVs being implemented in subsidiaries have debt service reserve account (DSRA) with obligation for 1-2 quarters (maintained as a combination of bank guarantee and cash). Renew Group also has a stated policy of keeping liquidity buffer of at least Rs 1500 crore, on an overall portfolio basis. Additionally, Renew group has fund based working capital lines for support across portfolio at holding company of over Rs 2000 crore (utilizations being 1163 crore as of September 2020). |
Rating Sensitivity factors Upward factors
Downward factors
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About the Group APPL, a SPV of Renew Power, has operational capacity of 27 megawatt in Madhya Pradesh. The plant has been set up on a turnkey basis by Suzlon Energy Ltd at a total project cost of Rs 189 crore. The project commenced commercial operations on March 30, 2017.
The Renew Power group is the largest player in the Indian renewable energy space, with a 5.43 GW operational portfolio. It was established in 2011 by Mr Sumant Sinha. It has a range of solar and wind assets in Gujarat, Rajasthan, Maharashtra, Karnataka, Andhra Pradesh, Telangana, and Madhya Pradesh, Uttar Pradesh and Tamil Nadu. |
Key Financial Indicators
*CRISIL Adjusted Numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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