| Azure Power Forty Three Private Limited | ||||||||
| 'CRISIL AAA (CE) / Stable , Provisional CRISIL AAA (CE) / Stable , CRISIL A / Stable' assigned to Bank Debt | ||||||||
| Rating Action | ||||||||
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| & A prefix of 'Provisional' indicates that the rating centrally factors in the strength of specific structures and will be supported by certain critical documentation by the issuer, without which the rating would either have been different or not assigned ab initio. This is in compliance with a May 6, 2015, directive by the Securities and Exchange Board of India: 'Standardising the term, rating symbol and manner of disclosure with regards to conditional/ provisional/ in-principle ratings assigned by credit rating agencies'. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has assigned its 'Provisional CRISIL AAA(CE)/Stable' rating to the proposed letter of credit facility and the ‘CRISIL AAA(CE)/Stable' rating to the availed letter of credit facility of Azure Power Forty Three Pvt Ltd (APFTPL). The rating on the letter of credit facilities is based on the unconditional and irrevocable letters of comfort (LOC) from PFC Ltd (PFC; rated 'CRISIL AAA/Stable/CRISIL A1+). The 'CRISIL A/Stable' rating has been assigned to the remaining bank facilities of APFTPL.
The provisional rating is based on the draft LOC document shared by the company. The provisional rating will be converted into a final rating after receiving the documents, in line with the structure submitted to CRISIL.
Furthermore, the unsupported ratings reflect benefits derived from being part of the Azure Power India (API) group. APFTPL has a strong market position as one of the leading players in solar energy in India, a diversified portfolio with high revenue visibility because of long-term power purchase agreements (PPAs), high financial flexibility and track record of timely equity infusion supported by presence of strong international investors with Caisse de depot et placement du Quebec (CDPQ), a large Canadian pension fund and a majority stake in the API group. The rating is, however, constrained by project implementation risks for under-construction projects, large expansion plans related to API’s recent winning of manufacturing-linked tender for 4 gigawatt (GW) of the solar plant capacity, average financial risk profile because of moderate debt service coverage ratio (DSCR) and elevated leverage and exposure to risks inherent in operating renewable energy assets. |
Analytical Approach For arriving at its ratings on the LOC-backed letter of credit facility, CRISIL has applied its criteria on rating instruments backed by guarantees.
For arriving at the rating of non-guaranteed instruments, CRISIL has combined the business and financial risk profiles of Azure Power India Pvt Ltd (APIPL) and all its special purpose vehicles (SPVs; collectively referred to as the API group). This is because all the companies have significant business, financial and managerial linkages, are in same line of business and enjoy fungibility of free cash flow. Also, the management has articulated that it views all the group companies as one and shall extend support in case of any adversity.
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
The credit quality of the guaranteed letter of credit facility reflects the credit quality of the LOC provider. CRISIL understands that PFC will undertake timely servicing of payments against the letter of credit facility in a full and time-bound manner. According to the ongoing and proposed payment mechanisms, PFC will pay the amount due in relation to the facility, as per the defined timeline structure, on the due date. Additionally, any payment under the letter of credit facility is and shall be hedged completely for the full tenure at the inception of the transaction. Any change in the transaction structure will be a rating sensitivity factor.
All the SPVs of the group are likely to receive strong managerial and financial support from API. The management has articulated to extend support to assets in case of any adversity. Bank limit is maintained at the APIPL level and is available for all group SPVs. API 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 API group is one of the largest solar energy players in India with a portfolio of around 3.1 GW (including under-construction capacity of 1.3 GW) as on September 30, 2020. The group had commissioned capacity of around 1.83 GW as on September 30, 2020, and had more than one year of operational track record as on September 30, 2020. The group portfolio has diversified projects in terms of location and counterparty. The assets are present in 13 states across the country and have strong revenue visibility, with power purchase agreements (PPAs) of 25 years at pre-determined tariffs and over 10 state and central counterparties.
The group has a strong track record of raising funds in Indian and overseas debt and capital markets. Azure Power Global Ltd (APGL; immediate parent of APIPL) is listed on the New York Stock Exchange (NYSE) and has majority shareholding by CDPQ (50.9% as on September 30, 2020). CDPQ has been consistently increasing its shareholding in APGL and has infused USD 250 million in the past four fiscals, while increasing its stake to 50.9% as on date from 20.3% in fiscal 2017.
In addition to CDPQ, the API group has a range of other marquee investors, including International Finance Corporation (IFC) and Helion Venture Partners, supporting the group’s ability to raise equity in a timely manner. The API group has raised total equity of USD 375 million (more than Rs 2,600 crore) since fiscal 2017.
Additionally, the group maintains adequate liquidity, with total cash balance of Rs 1,405 crore (consolidated) as on September 30, 2020. The management has also articulated to maintain DSRA of at least two quarters on an ongoing basis. Furthermore, CDPQ is expected to provide need-based support to the API group.
Weaknesses:
As on September 20, 2020, the group had 1.29 GW of under-construction projects, which face implementation risk. However, this risk is mitigated by executed PPAs and strong financial flexibility of the group and its demonstrated track record of project execution.
Additionally, the group has large expansion plans towards manufacturing-linked tender for the 4-GW solar plant at a fixed tariff of Rs 2.92/ kilowatt-hour (kWh) along with manufacturing plant for 1 GW of solar modules, won in fiscal 2020. While the group has received a letter of award for the entire capacity, the PPA is yet to be signed, following which the project will need to be completed in a staggered manner over four years. While the group has exhibited a track record of timely fund infusion to meet its growth requirement in the past years, the sourcing of long-term funds in a timely manner to support the expansion plan shall remain a key monitorable.
While majority of ongoing projects (>55%) have strong off-takers, API has significant exposure to counterparties in the form of state distribution companies (discoms), several of which have weak credit risk profiles. Receivables rose to around 130 days as on March 31, 2020 (from < 90 days as on March 31, 2018) on account of increase in payment delays by some state discoms, mainly in Andhra Pradesh and Karnataka. However, the receivables witnessed improvement in fiscal 2021, though they remained high at 114 days as on September 30, 2020. Delay in correction of the payment cycle from these state discoms can strain the overall cash flow and group liquidity and, thus, will be a rating sensitivity factor. However, post commissioning of under-construction projects, the overall share of strong off-takers shall increase to >70% and support reduction in overall receivables over the medium term.
API’s average financial risk profile is indicated by moderate adjusted DSCR (on a P90 basis) of about 1.3 times1 and high outstanding debt of around Rs 8,000 crore as on March 31, 2020, resulting in moderate debt protection metrics. Leverage (ratio of debt to earnings before interest, taxes, depreciation and amortisation) and gearing were moderately high at 8.5 times and 3.5 times as on March 31, 2020, respectively, while the interest coverage ratio remained modest at 1.1-1.3 times in the past three fiscals. Leverage and gearing are expected to remain high over the medium term on account of incremental capital expenditure (capex) towards under-construction projects funded in debt equity ratio of 3:1. Also, the group has refinancing risk towards bonds of USD 850 million (more than Rs 6,200 crore) with bullet repayments in November 2022 and December 2024. However, the refinancing risk is mitigated by surplus cash maintained by the group as well as cash flow from the underlying projects. |
Liquidity Liquidity for guaranteed LOC-backed letter of credit facility: Superior The rating for the guaranteed facility is driven by the LOC from PFC. The payment mechanism has been designed accordingly.
Liquidity for non-guaranteed facilities: Adequate The API group’s liquidity should be adequate, driven by expected cash accrual of Rs 300 crore and Rs 500 crore in fiscals 2021 and 2022, respectively. Cash and equivalents stood at Rs 1,400 crore as on September 30, 2020. Cumulative capex of around Rs 5,000 crore in fiscals 2021 and 2022 for the 1.29 GW capacity is expected to be commissioned by the third quarter of fiscal 2022 and should be funded through a mix of debt and internal accrual. The debt obligation in fiscals 2021 and 2022 stood at Rs 230 crore and Rs 112 crore, respectively, and is expected to be repaid through cash accrual generated during the respective fiscals. Additionally, CDPQ, the group’s ultimate parent, should provide need-based support. |
Outlook on non-guaranteed facilities: Stable CRISIL expects the credit risk profile of the API group entities to remain stable over the medium term, supported by healthy cash flow from operational projects and timely commissioning of under-construction projects in the next fiscal. |
Rating Sensitivity factors Upward factors • Reduction in leverage resulting in DSCR of more than 1.45 times • Sustained improvement in the operating performance exceeding P90 levels
Downward factors • Significantly lower-than-expected PLF negatively impacting the DSCR for the group to below 1.25 times • Stretched receivables weakening liquidity |
Adequacy of credit enhancement structure The rating on the bank facility reflects the unconditional and irrevocable LOC from PFC. According to the payment mechanism, it will pay on the due date any amount due and payable in relation to the letter of credit facility. |
Unsupported ratings CRISIL A CRISIL has introduced 'CE' suffix for instruments having explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported ratings, CRISIL has combined the business and financial risk profiles of Azure Power India Pvt Ltd (APIPL) and all its special purpose vehicles (SPVs; collectively referred to as the API group). This is because all the companies have significant business, financial and managerial linkages, are in same line of business and enjoy fungibility of free cash flow. Also, the management has articulated that it views all the group companies as one and shall extend support in case of any adversity. CRISIL expects the credit risk profile of the API group entities to remain stable over the medium term, supported by healthy cash flow from operational projects and timely commissioning of under-construction projects in the next fiscal. |
About the Company APFTPL is a 600-MW AC (900 MW DC) solar photovoltaic (PV) power project in Bikaner, Rajasthan. The company is a subsidiary of APIPL, with its ultimate holding company being APGL. It is in the final stages of construction and the expected scheduled commissioning date is January 2021. The project has signed a PPA with Solar Energy Corporation of India at a tariff of Rs 2.53/Kwh for 25 years. |
About the Group API is a leading solar power producer in India with a portfolio of 3 GW of solar power assets. It is listed on the NYSE, while its solar green bonds are listed on the Singapore Exchange. The group is backed by long-term investors, such as CDPQ, IFC, Helion Venture Partners, Société de Promotion et de Participation pour la Coopération Économique and Netherlands Development Finance Company. |
Key Financial Indicators APFTPL
*Project to be commissioned in March 2021
API (consolidated)
Note: These reflect CRISIL-adjusted consolidated financials |
List of covenants for the guaranteed facility
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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)
*Term loan is interchangeable with Rs 1700 crore Letter of Comfort (LoC) facilities from PFC. The LoC shall be used for issuing Letter of Credit (LC). Hence, total indebtedness of the company will not be greater than Rs 1953 core |
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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