| Update on Azure Power Forty Private Limited |
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.
CRISIL Ratings notes the further delay in release of audited financials by Azure Power Forty Private Limited (Azure 40; part of the Azure Power India [API] group[1]).
The management is taking efforts for the audited financials to be released as soon as possible. Timely filing of audited financial statements is a covenant under its financing documents with banks. The group had secured extension of timelines for submission of financials of fiscal 2022 till March 31, 2023, and has approached lenders to seek further extension now. It has received extension from a few lenders and is in discussion with the remaining, for release of audited financials. Extension is important as delay beyond approved timelines may lead to triggering of debt covenants and acceleration of repayment, and will remain a key monitorable.
The Securities and Exchange Commission (SEC) has allowed the API group to complete and file its annual report by July 15, 2023, subject to ongoing reassessment. Delay in filing the form 20-F with the SEC has limited the ability of the company to raise equity through share issuance and exposes the parent to the risk of being delisted from the New York Stock Exchange. This risk is mitigated by the continued backing of strong majority investors.
On January 25, 2023, the group released a note covering its view on whistleblower allegations and internal controls, along with release of key operational and select unaudited financials for fiscal 2022 and the first half of fiscal 2023. However, release of audited financials continues to be delayed.
The group announced that following investigation of whistleblower allegations announced on August 29, 2022, it found weak internal controls, leading to misrepresentation of data pertaining to a project. The group has initiated remedial action for improving internal controls, including the financial reporting framework. In September 2022, it received an additional whistleblower complaint alleging misconduct in land acquisitions, lack of transparency and misreporting of project data. However, investigators did not find any evidence in these allegations. The company will report in its form 20-F that the group’s control over financial reporting was not effective as on March 31, 2022. As per the company’s management, there are no new material whistleblower allegations following the press release dated January 25, 2023.
The API group estimates the potential liability arising from these lapses at Rs 1.6 crore. However, there could be further penalties from customers or regulatory authorities, though as per management no such fines have been demanded by anyone until now.
On December 22, 2022, CRISIL Ratings had downgraded its rating on the bank facilities of APIPL one notch to ‘CRISIL A+’ as the prolonged delay in resolution of whistleblower allegations and release of audited financial statements heightened the uncertainty of financial implications.
Basis the information shared in the press release, the operational performance of underlying assets and project cash flow continue to be healthy. The group continues to have financial flexibility with healthy cash balance, and benefits from the presence of strong and resourceful investors. It has been able to tie up additional debt for its under-construction projects post the whistleblower allegations. Majority of APIPL’s shares are held by Caisse de Depot et Placement du Quebec (rated ‘AAA/Stable/A-1+’ by S&P Global Ratings) and Ontario Municipal Employees’ Retirement System (OMERS), large Canadian pension funds with long-term investment outlook, supporting track record of timely equity infusion.
The ratings continue on ‘Watch with Negative Implications’. CRISIL Ratings is closely engaging with the group’s management and will monitor the developments. Further delay in the release of audited financials or any observation in the audited financials leading to material impact on the financial flexibility of the group will remain rating sensitivity factors. CRISIL Ratings will resolve the watch and take appropriate rating action once more clarity is received.
For accessing the existing rating rationales of the API group companies, please use the following links:
[1] Azure Power India Pvt Ltd (APIPL; rated ‘CRISIL A+/CRISIL A1/Watch Negative’) and its special-purpose vehicles, including Azure 40, are collectively referred to as the API group |
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