Detailed Rationale

CRISIL Ratings has removed its ratings on the bank facilities of Continuum Trinethra Renewables Pvt Ltd (CTRPL) from ‘Rating Watch with Developing Implications’ and has upgraded its long-term rating to ‘CRISIL A+’ from ‘CRISIL A’ while assigning a 'Stable' outlook to the rating. Short-term rating has been reaffirmed at ‘CRISIL A1’

 

CTRPL is a part of the Continuum restricted group [CRG]), which  includes eight operational Indian special-purpose vehicles (SPVs) – 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), Renewables Trinethra Pvt Ltd (RTPL), Kutch Windfarm Development Private Limited (KWDPL) and CTRPL. These SPVs (except WIPL) are wholly owned subsidiaries of Continuum Green Energy Private Ltd (CGEPL), which is a 100% subsidiary of the Singapore-based, Continuum Green Energy Holdings Ltd (CGEHL); holding entity for all renewable assets under the Continuum group).

 

The CRG had witnessed the addition of two entities into itself, namely, KWDPL and CTRPL, as a part of the refinancing of earlier debt of the CRG, earlier this fiscal. The rating watch resolution and the rating upgrade is based on the successful completion of the refinancing along with full clarity of the refinancing terms and functioning of the new CRG provided to CRISIL Ratings.

 

The existing debt of the KWDPL, CTRPL and CRG - 1 USD notes of the six entities of the group was refinanced with issue of USD 650 million (~Rs. 5,520 crore) 7.5% senior secured notes listed on the Global Securities Market – India International Exchange (the “INX”) with a long tenor debt of 9 years, till June 2033. As per the terms of the CRG debt CRISIL Ratings understands that each of the 8 entities will act as co-issuer towards each other under a cross guarantee. Also, there will be a cash pooling mechanism and covenants related to mandatory cash sweep as well as debt service reserve account (DSRA) requirement.

 

The rating upgrade of CTRPL factors in addition of the entity as a part of the CRG which has strong revenue visibility, low offtake risk (with almost the entire capacity of 990.8 megawatt [MW] tied up), diversification benefits enjoyed by the CRG, given that assets are spread across four states with an abundant wind and solar supply, healthy counterparty mix and expectation of a healthy debt service coverage ratio (DSCR) over the medium term.

 

These strengths are partially offset by a moderate generation profile with plant load factor (PLF), at a group level, being lower than the P-90 level over the past five fiscals and exposure to moderate counterparty credit risk, with nearly 37% of the portfolio tied up with state distribution companies (discoms) – Maharashtra State Electricity Distribution Corporation Ltd (MSEDCL) and Madhya Pradesh Power Management Company Ltd (MPPMCL). While there has been improvement in the payment track record of both these discoms, post implementation of late payment surcharge, going forward established track record of timely receipts of payments is a key monitorable. Any delays in receiving payments from these discoms, resulting in stretch in receivables, is a rating sensitivity factor.

 

Furthermore, the CRG is exposed to refinancing risk, given the balloon payment structure of the bond in 2033, and tariff risk for the companies as part of the capacity has medium-term power purchase agreements (PPAs) with commercial and industrial (C&I) customers.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy revenue visibility and low offtake risk: The capacity of 990.8 MW is fully tied-up with state discoms – MSEDCL (20% of total capacity), MPPMCL (17% of total capacity) and C&I customers (63% of total capacity). Under third party or group captive arrangements, the customer mix is well diversified, including PPAs with around 100 customers, and no single customer accounting for more than 10% of the C&I capacity. This provides healthy revenue visibility over the medium term.

 

The PPA with MSEDCL has a fixed average tariff of Rs 5.76 per unit and is valid till fiscals 2027, while that with MPPMCL carries a fixed tariff of Rs 5.92 per unit and is valid till fiscal 2040. For C&I projects, the capacity weighted average tenure of the PPAs is about nine years with an average lock-in period of 2-3 years. Weighted average gross tariff for C&I customers is linked to discom tariff and at a healthy discount as compared to grid tariff, which mitigates the offtake risk significantly. While C&I projects involve tariff risk on expiry of the PPA over the medium term, the group’s track record of adding and servicing customers will provide comfort.

 

• Strong financial flexibility arising from a partially amortising bond structure: The USD notes issued by the eight SPVs have a partially amortising structure with mandatory amortisation of only about 4.5% over the life of the notes. Furthermore, the principal and interest on note outstanding are payable at half-yearly intervals. This provides significant flexibility to manage any build-up of receivables from state discoms. All the working capital facilities were repaid during the fiscal.

 

Furthermore, refinancing risk at the end of the bond tenure is partially mitigated by scheduled MCS payments forming nearly 55% of the bond. In case of insufficient cash flow, these payments can be rolled forward to the next payment date till the end of the tenure. Also, non-payment does not result in an event of default, thus enhancing the flexibility to manage cash flow. The structure has a well-defined, trustee-managed waterfall mechanism wherein surplus from SPVs can be distributed only after meeting cash flow requirements of all SPVs, including statutory and operational cost, debt obligation and MCS payment, formation of debt service reserve account (DSRA), along with a minimum DSCR of 1.1 times (calculated excluding MCS payments) over the preceding 12 months. This provides sufficient cushion in case of stress on short-term liquidity.

 

• Healthy financial risk profile: The CRG SPVs are expected to have healthy average consolidated DSCRs at P-90 PLF levels at CRISIL Ratings’ sensitised projections over the tenure of the debt. Further, existing cash & bank balance of Rs 631 crore for CRG-2, stipulated DSRA requirement and repatriation of any surplus cash generation supports healthy liquidity and financial profile of the CRG.

 

• Geographically diversified capacity mix: The CRG has a total installed capacity of 990.8 MW, of which 68% is wind and the remaining 32% is solar (DC capacity). It is well diversified across four states - Gujarat (40%), Tamil Nadu (TN; 23% of total capacity), Maharashtra (20%) and Madhya Pradesh (MP; 17%). These states have abundant wind supply in India. In terms of track record of operations, the current weighted average track record is healthy at nearly 6 years.

 

Weaknesses:

• High counterparty credit risk emanating from exposure to weak discoms: Around 37% of the portfolio is exposed to high counterparty credit risk, with delays seen in the past in payments from state discoms viz. MSEDCL and MPPMCL. In the case of MSEDCL, peak debtors days stood at 418 as on March 31, 2021 while for MPPMCL the same was 406 days as on September 30, 2022.

 

However, post implementation of LPS there has been an improvement in the payment track record of both these discoms. CRISIL Ratings understands that MSEDCL has paid its past dues (amount outstanding till generation for August 2022) and payments for September 2022 – March 2023 generation months were received in around 4.5 months. In the current fiscal, receivables period improved, and payments were received in around 70 days and the same trend is expected to continue going forward. 

 

MPPMCL on the other hand, has opted to liquidate outstanding dues along with LPS, pertaining to generation up to March 2022, by paying equal monthly installments of around Rs 4.6 crore per month over 40 months. As per the management, they have received installments from August 2022 to June 2024 as per the schedule. MPPMCL has cleared payments for generation till June 2024, and is now expected to pay dues within timelines of 30 days as per PPAs.

 

As on March 31, 2024, receivables days stood at 70 in the case of MSEDCL and 182 for MPPMCL, an improvement from the peak days of upwards of 400. Nonetheless, long established track record of timely payments will be a key monitorable.

 

• Exposure to inherent risks associated with renewable energy generation: Wind power generation remains highly vulnerable to seasonality and variance in wind intensity. Performance of solar power plants depends on irradiation levels around the location of the plant and annual degradation in solar panels. The weighted average performance of the assets in four months ended July 2024 stood at 31.4% (28.8% seen in four months ended July 2023), however lagged the P-90 level (performance in fiscal 2024 stood at 23.5%). This was mainly due to low wind speeds across majority of the projects. Given that cash flow is highly sensitive to PLFs in both solar and 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.

 

• Moderate refinance risk: The structure remains exposed to moderate debt refinancing risk, with ~59% of the bond amortising (including MCS payments) by Dec 2032, that is prior to the bullet repayment at the end of the tenure in June 2033. However, the DSRA balance maintained till the end of the tenure, healthy business risk of underlying assets, robust blended DSCR over available useful life of projects, capacity weighted useful life of around 7 years post the bond expiry and successful refinancing track record of the group, will help mitigate this risk significantly.

 

• Exposure to regulatory changes in tariff structure and wind policy: PPAs with third-party customers are tied-up on a gross tariff basis with charges relating to open access, cross subsidy surcharge and additional charges borne by SPVs. The PPAs provide for 50% sharing of increase or decrease in industrial tariffs and various regulatory charges with customers. The ability of the company to pass on the quantum of these regulatory charges to customers, as per terms of the PPA, remains a monitorable from a credit perspective.

Liquidity: Strong

Liquidity remains strong, backed by cash and equivalents of around ~Rs 674 crore as on September 30, 2024. Further, creation of DSRA post MCS provides healthy liquidity. Further, retention of annual surplus cash till lender’s consent and subject to annual covenant testing supports the liquidity of CRG. Further, CRISIL Ratings understands that the overall liquidity at all point in time is likely to be ~ 6 months for the CRG.

Outlook: Stable

CRISIL Ratings believes the group will continue to benefit from stable cash accrual with performance of projects at healthy PLFs and limited offtake risk.

Rating sensitivity factors

Upward factors:

• Sustained generation at significantly higher than P-90 levels
• Faster-than-expected debt reduction resulting in materially higher-than-expected DSCRs over the remaining loan tenure

 

Downward factors:

• Further stretch in receivables, delay in DSRA creation beyond stipulated timelines or any higher than expected withdrawal of funds from CRG, impacting the overall liquidity levels of CRG
• Sustained generation at significantly lower than P-90 levels

About the Company

Incorporated in 2020, CTRPL is a 100% subsidiary of CGEPL. 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.

 

The Continuum group was founded in 2009, as an independent power producer in the renewable energy segment. In June 2012, North Haven Infrastructure Partners (NHIP), managed by Morgan Stanley Infrastructure Partners, committed to invest up to USD 200 million towards wind projects of the group.

 

As on date, Continuum Green Energy Holdings Ltd (CGEHL) Singapore owns 85.35% of shareholding of CGEPL with the balance 14.65% held by JC Infinity (B) Limited, a Just Climate investment arm. CGEHL is in turn held by founders (74%) and Morgan Stanley (26%). The recent fund raising by the group will support future growth plans of the group.

 

As on June 30, 2024, the Continuum group has fully operational wind capacity of 1,081 MW and 219 MWp of solar and another 402.3 MW of wind and 630.9 MWp of solar assets are under construction. Additionally, the group is also developing wind and solar assets of 1,700 MW. Projects are spread across Gujarat, Madhya Pradesh, Maharashtra and Tamil Nadu.

Any other information: Not Applicable