Detailed Rationale

CRISIL Ratings has upgraded its rating on the long-term bank facility 18 solar power special-purpose vehicles (SPVs) of Macquarie Asia Infrastructure Fund (referred to as the Macquarie Solar SPVs) to ‘CRISIL AAA’ from ‘CRISIL AA+’ while removing the rating from ‘Rating Watch with Developing Implications’ and assigned a ‘Stable’ outlook to the long term rating.

 

The rating was put on watch following guidance from Reserve bank of India (RBI) on factoring support provided by an obligor-co-obligor structure. Earlier the obligor-co-obligor group, which includes these 18 SPVs did not have an inter-institutional cross guarantee. The rating watch was solely driven by regulatory guidance and there was no change in the then existing credit profile of the group. Now the group has executed corporate guarantees in line with RBI guidance which are legally binding with a structured payment mechanism.

 

Rating upgrade factors an improvement in generations levels in trailing twelve months and expectation of superior performances due to ongoing performance improvement measures by the management. This is likely to result in superior debt servicing cushions over remaining debt tenor. The weighted average PLF for 18 Macquarie solar SPVs for trailing twelve months ending February 2023 improved to 17.30% from 16.67% in FY22 which were even better than P75 PLF of 17.13% (factoring in annual degradation). Further, management has undertaken several operational improvement steps such as robotic cleaning, scada installation and replacement of underperforming electrical equipment including inverters. As a result, generation levels are expected to be sustainably better than modeled.

 

The rating reflects strong revenue visibility for all the SPVs, backed by long-term power purchase agreements (PPAs) and low sales risk, healthy financial risk profile and adequate liquidity, and improved operational track record in FY22 and TTM. These strengths are partially offset by exposure to changes in rate of interest and exposure to risks inherent in operating solar-energy assets.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of 18 Macquarie Solar SPVs, in line with its criteria for rating entities in homogeneous groups. The rating of the individual SPVs has been equated to that of the group. The SPVs are Precious Energy Services Pvt Ltd (Precious), Solitaire Energies Ltd (Solitaire Energies), Porbandar Solar Power Ltd (Porbandar), Ganges Green Energy Pvt Ltd (Ganges), Ganeshvani Merchandise Pvt Ltd (Ganeshvani), CBC Solar Technologies Pvt Ltd (CBC), Sapphire Industrial Infrastructures Pvt Ltd (Sapphire), Aftaab Solar Private Ltd (Aftaab), Solitaire Industrial Infrastructure Pvt Ltd (Solitaire Industrial), Deligentia Energy and Infrastructures Pvt Ltd (Deligentia), Bhanuenergy Industrial Development Ltd (Bhanuenergy Industrial), Bhanuenergy Infrastructure and Power Ltd (Bhanuenergy Infrastructure), Hiraco Renewable Energy Pvt Ltd (Hiraco), Kindle Engineering and Construction Pvt Ltd (Kindle), Chattel Constructions Pvt Ltd (Chattel), Responsive Sutip Ltd (Responsive), Sand Land Real Estate Pvt Ltd (Sand Land); and Ujjawala Power Pvt Ltd (Ujjawala). (A list of these 18 entities is also provided under the Annexure.) All the entities operate solar power assets, have a centralised management and treasury, and remain critical to the group. Each SPV acts as a co-obligor to the other. Post debt servicing in each SPV, excess cash flows are largely available for use across the group. Any deviation in this understanding remains a key rating sensitivity factor.

 

Additionally, all 18 SPVs have legally binding cross-guarantees which make them act as co-obligors to debt obligations.

 

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:

• Strong revenue visibility and low sales risk

Having an aggregate capacity of 325 megawatt (MW), the group has 25-year PPAs with Gujarat Urja Vikas Nigam Ltd (GUVNL), Torrent Power Ltd, NTPC Vidyut Vyapar Nigam Ltd (NVVN), Durgapur Projects Ltd (DPL) [merged with WBSEDCL with effect from January 01, 2019], Madhya Pradesh Power Management Company Ltd (MPPMCL) and Punjab State Power Corporation Ltd (PSPCL). The group supplies power at a fixed tariff, ranging from Rs 3.45/kWh to Rs 15.0/kWh, under the respective PPAs. All the SPVs are operational with an average operational track record of over nine years. Also, 88% of dues are received from counterparties with payment track records of less than a month from the date of invoice. This lowers the demand risk and enhances the revenue visibility.

 

• Healthy financial risk profile and adequate liquidity

Macquarie Solar SPVs are expected to report healthy average consolidated DSCRs in CRISIL Ratings sensitised projections at P-90 plant load factors (PLFs), over the remaining debt tenor. Additional credit enhancers are available in form of inverter replacement reserve are maintained for 10 years after commencement of commercial operations, an O&M reserve account created covering three months of expenses, and cash sweep option available from fiscal 2026 (wherein lenders will have the right to sweep more than 30% surplus cash flows for prepayment of debt in the inverse order of maturity).

 

Besides this, the group maintains adequate liquidity for debt servicing during adverse conditions, as part of the transaction with a blended liquidity of nearly six months. This will be in the form of a) one quarter debt service reserve account (DSRA) for all projects, and two quarters for projects with a relatively weaker counterparty, b) O&M reserve equivalent to 3 months of budgeted expenses as per base case sanctioned and c) inverter replacement reserve of around one month of debt servicing at peak level.

 

• Improved operational track record seen in TTM and FY22

Macquarie solar SPVs have shown a sustained improvement in operational performance in trailing twelve months ending February 2023 and fiscal 2022 on back of several performance improvement initiatives undertaken from surplus cash flows in previous 3 fiscal years. As a result, generation for the group improved in FY22 and TTM to 16.67% and 17.30% respectively. This performance was better than P90 estimates of 16.20% (FY22) and generation seen in FY19 and FY20. 90% of the capacity has been performing better than P90 levels in trailing twelve months ending February 2023. It is expected that performance in coming fiscals shall remain superior compared to P90 levels.

 

Weaknesses:

• Exposure to changes in rate of interest

The group has outstanding debt of Rs. 1,226 crores as on December 31, 2022, which is repayable over 15 years ending in March 2032 (for majority of the SPVs). Given, 46% of the debt in fiscal 2025 is exposed to revision in interest rates, hence, debt service cushions remain exposed to changes in interest rates over longer tenor, given that cash flows are linked to fixed tariffs in PPAs. Higher-than-expected upward movement in interest costs will be a rating sensitivity factor.

 

• Susceptibility to climate changes and technology risk:

Generation of solar power depends on favourable climatic conditions and remains vulnerable to inherent risks associated with solar radiation in the long term. Albeit the generation levels in FY22 (at 16.67%) were better than P90, however, they were lower than FY21 (at 17.04%) generation levels due to decreased irradiance especially in catchment area of state of Gujarat. Variation in solar intensity or irradiation could reduce the operating PLF and thereby cash flows.

Liquidity: Superior

Driven by expected cash flows of Rs 350 crore and Rs. 262 per fiscal in 2024 and 2025 respectively, and DSRA equivalent to 4 months of debt servicing of Rs 102 crore as of February 2023. The SPVs have debt obligations (towards interest and principal) of over Rs 270 crore and Rs. 199 crore per fiscal in 2024 and 2025. The SPVs have also maintained the stipulated invertor and O&M reserve as per the financing agreements.

Outlook: Stable

Expected to have stable cash flows backed by long-term PPAs and improved operational performance.

Rating Sensitivity Factors

Downward Factors

• Stretches in payment cycle beyond 45 days for the entire portfolio on a sustained basis.
• Weighted average PLF for the entire portfolio lower than P90 level on a sustained basis.
• Non-adherence to the terms of the corporate guarantee.

About the Company

CBC operates a 10 MW solar photo voltaic (PV) power plant in Rajkot, Gujarat. The plant became operational in April 2015.

 

In 2017 and early 2018, Macquarie Asia Infrastructure fund acquired the shareholding, of Hindustan Power’s 251 MW solar power plant in Gujarat, Tamil Nadu, West Bengal, Madhya Pradesh, Punjab and Odisha, for an undisclosed consideration.

 

The Macquarie Solar SPVs include Precious, Solitaire Energies, Porbandar, Ganges, Ganeshvani, CBC, Sapphire, Aftaab, Solitaire Industrial, Deligentia, Bhanuenergy Industrial, Bhanuenergy Infrastructure, Hiraco, Kindle, Chattel, Sand Land, Responsive and Ujjawala.

About Macquarie Asia Infrastructure Fund

Macquarie Asia Infrastructure Fund is a 10-year closed end fund targeting infrastructure investments in Greater China, India, Korea, Japan, Australia, New Zealand, and investment grade Southeast Asia.