| Continuum Trinethra Renewables Private Limited | ||||||
| Rating placed on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| 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. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has placed its ratings on the bank facilities of Continuum Trinethra Renewables Private Limited (CTRPL) on 'Rating Watch with Developing Implications'. CTRPL is a wholly owned subsidiary of Continuum Green Energy (India) Pvt Ltd (CGEIPL; ‘CRISIL A-/Stable’).
The rating action follows the recent announcement that the management of the Continuum group has finalised fund raising in US dollars equivalent to up to Rs 5,520 crore in the form of senior secured green bonds to refinance the debt of eight group entities and will form a new restricted group (RG) comprising the eight entities. The bonds will have a tenure of nine years.
The new RG will include Kutch Windfarm Development Pvt Ltd (KWDPL), CTRPL, Bothe Windfarm Development Pvt Ltd (BWDPL), DJ Energy Pvt Ltd (DJEPL), Uttar Urja Projects Pvt Ltd (UUPPL), Watsun Infrabuild Pvt Ltd (WIPL), Trinethra Wind and Hydro Power Pvt Ltd (TWHPPL) and Renewables Trinethra Pvt Ltd (RTPL). CRISIL Ratings understands that the fund raising for the new RG is likely to include cross guarantee by each co-issuer towards other co-issuers along with cash pooling mechanism and covenants related to debt service reserve account (DSRA) requirement and mandatory cash sweep (MCS).
However, CRISIL Ratings understands that the management is still finalising the agreements related to the said features including cross guarantee and cash pooling mechanism. Clarity related to the functioning of the new RG as well as the mentioned key terms, including cash pooling and support mechanism between the said entities, will be essential to assess the impact of the same on the ratings and will help in resolving the rating watch.
CTRPL has strong revenue visibility and low offtake risk as the entire project capacity has been tied up with third-party commercial and industrial (C&I) customers through power purchase agreements (PPAs) with average tenure of around 13 years. The ratings further factor in operational diversity of the asset being hybrid in nature (solar and wind capacities) along with low counterparty credit risk, supported by the strong credit risk profile of the diversified third-party customer mix. These strengths are partially offset by limited operational track record, downward fluctuation (if any) in the tariff structure with movement in regulatory charges, and exposure to risks inherent in operating solar and wind-energy assets. |
Analytical Approach CRISIL Ratings has assessed the credit risk profile of CTRPL at a standalone level. Furthermore, optionally convertible debentures (OCDs; part of promoters’ contribution) amounting to around Rs 305 crore as on March 31, 2023, issued to CGEIPL have been treated as neither debt nor equity. |
Key Rating Drivers & Detailed Description Strengths:
Diversity in terms of generation profile of the asset (hybrid wind and solar) is likely to result in continuation of power generation since underperformance in one generation mode is likely to be offset by overperformance in the other. Furthermore, CTRPL has signed PPAs with average tenure of 13 years for its entire capacity with 33 third-party C&I customers across multiple sectors, providing adequate revenue visibility. However, average lock-in tenure of the PPAs is moderately low at 4.5 years, thereby exposing the asset to PPA renegotiation risk. Nonetheless, the rating draws comfort from the tariffs allowing for a healthy discount of around Re 1 per unit for the buyers, compared with grid tariffs, resulting in low offtake risk for the project.
The counterparties largely have healthy credit risk profiles, resulting in low counterparty risk. Furthermore, the payment cycle has been around a month for the commissioned capacity over the past five months. Continuation of timely receipt of payments from the counterparties will remain a key monitorable.
The company has tied up capacity at capacity-weighted net tariff average of Rs 4.55 per unit. Coupled with the long tenure of the debt (15 years), this will lead to comfortable average DSCR at P90 levels over the loan tenure. Furthermore, project cash flow and receivables are clearly ring fenced in a trust and retention account along with a cash sweep option to the lender (50% of surplus) as per the financing agreement.
Weaknesses:
The company has commissioned the entire project capacity in a phased manner from May 2022 to June 2023 with majority of the capacity commissioned in April 2023. Consequently, the company has limited weighted average track record of around six months (on total project capacity – from June 9, 2023 till date). Hence, the ability to achieve the desired plant load factor (PLF) in the near to medium term remains a key monitorable.
The PPAs with third-party customers are tied up on a gross tariff basis with open access charges, cross-subsidy surcharge and additional charges borne by the special purpose vehicles (SPVs). Some of the PPAs provide for 50% sharing of increase or decrease in industrial tariffs and various regulatory charges with customers. As a result, the ability of the company to pass on the quantum of these regulatory charges to customers, as per the terms of the PPA, remains a monitorable from a credit perspective.
Solar power generation depends on irradiation levels around the plant's location. Also, changes in the average temperature or performance of solar modules may affect the company's power generation and lead to higher-than-expected degradation in solar panels. Given that cash flow of a solar power project is highly sensitive to variation in PLF, these factors could impair the debt servicing capability of solar projects. Furthermore, wind power generation remains highly vulnerable to seasonality and variance in wind intensity. Given that cash flow is highly sensitive to PLF in wind assets, these risks could severely impair debt servicing and free cash flow. CRISIL Ratings will continue to monitor PLF levels as a key rating sensitivity factor. |
Liquidity: Strong CTRPL’s liquidity will be driven by expected cash accrual of Rs 190-200 crore per annum in fiscals 2024 and 2025, and cash and cash equivalent of Rs 53.8 crore as on November 3, 2023. Against this, the company has external debt obligation of around Rs 90 crore in fiscal 2024 and around Rs 154 crore in fiscal 2025 and minimal capital expenditure (capex) plans. Currently, fund-based working capital limits of Rs 15 crore are unutilised. Debt service reserve account (DSRA) equivalent to one quarter of debt obligation is expected to be build up. CRISIL Ratings understands that CTRPL has created partial DSRA of Rs 30 crore (from cash balance of Rs 53.8 crore) as on November 30, 2023, and remaining DSRA is to be created from project cash flow within the next twelve months. CRISIL Ratings expects internal accrual, cash and cash equivalent, and expected DSRA to be sufficient to meet the debt obligation as well as any incremental working capital requirement. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 2020, CTRPL is a 100% subsidiary of CGEIPL. The company operates a wind-solar hybrid power asset of 199.9 megawatt – alternate current (MWAC) / 239.9 megawatt peak (MWp [99.9 MW wind and 100 MWAC / 140 MWp solar project]) in Morbi / Rajkot, Gujarat. The project was fully commissioned in June 2023. It supplies power to third-party C&I customers. |
Key Financial Indicators – CTRPL – CRISIL Ratings-adjusted numbers
NM: not meaningful Though the company was incorporated on July 17, 2020, the entire capacity was commissioned in June 2023. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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