Key Rating Drivers & Detailed Description

Strengths:

• Management and financial support derived from ultimate parent, Sembcorp Industries:

SCI, currently operating in diverse segments such as energy, water, and urban development, is present across 15 countries. It has capacity of over 13,000 MW of gross power generation, and close to 9 million cubic metre of water treatment per day in operation and under development. With total assets of over SGD 23 billion, SCI is listed on the main board of the Singapore Exchange. It is 49.5% owned by Temasek, a Singapore government-held entity.

SCI has supported its assets globally and in India during adverse situations. For instance, it provided support for thermal power assets in India. CRISIL believes the Sembcorp Energy India group is critical to the business of Sembcorp Industries and shall benefit from managerial and financial support from the parent, if required. Any deviation from this will be a key rating sensitivity factor.

• Support derived from being part of the Sembcorp Energy India group

GICSL enjoys strong managerial support from the group. It benefits from the group’s demonstrated track record of execution and ramp-up of projects, and support offered to SPVs in the renewable portfolio, for instance, aid extended to wind power projects on account of stretch in receivable profile of certain projects. The group is likely to maintain adequate liquidity to meet any exigencies or shortfall. Any deviation from the policy of support will be a key rating sensitivity factor.

The group derives its strength from its diverse portfolio of commissioned capacity of 2,640 MW thermal power and 1727 MW wind and solar power as of March 2021. It has operational assets in Karnataka, Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Tamil Nadu, and Andhra Pradesh. Of the total portfolio of 4,367 MW, the group draws strong revenue visibility from long-term PPAs for around 60% of capacity with over nine state distribution companies (discoms), Bangladesh Power Development Board, and Solar Energy Corporation of India/ PTC (apart from various group captive consumers).

• Strong revenue visibility of GICSL

GICSL has 212.5 MW operational wind power projects, spread over Rajasthan, Madhya Pradesh, Gujarat and Maharashtra. These projects have strong revenue visibility, backed by long-term PPAs with state discoms, at tariffs ranging from Rs 4.15/ kWh to Rs 5.92 kWh over the tenor of the agreement.

The projects also benefit from generation-based incentive schemes, as they have achieved commercial operations prior to March 31, 2018. Besides this, there is adequate liquidity, for debt servicing during adverse conditions, to be kept as a part of the transaction in the form of one quarter DSRA (debt service reserve account).

Weakness:

• Exposure to risks inherent in operating renewable projects

Cash flows of renewable power projects are sensitive to the plant load factor (PLF), which depend entirely on wind and solar patterns that are inherently unpredictable. This could impact the group’s debt servicing capability.

• Exposure to counterparty risk and merchant price movements for thermal power unit

The Sembcorp Energy India group has 2,640 MW of coal-based thermal power plants. It has long-term PPAs for 1,320 MW, on net generation basis, of this capacity. Sale of power generated from the balance untied capacity on a short-/medium-term basis, exposes this capacity to volatility in merchant rates. Until the capacity gets tied up in a long-term PPA, quantum of power sold at a rate exceeding the variable cost of generation, will remain a key monitorable.

A large proportion of the long-term PPAs for thermal power capacity are with discoms of Andhra Pradesh and Telangana, and with Bangladesh Power Development Board. The group has been managing any irregularities in payments from any of the counterparties for thermal capacity through working capital bank debt. Though implementation of the payment security mechanism by way of issuance of letter of credit (LC) should benefit power generating entities, including the Sembcorp Energy India group, the extent of the benefit and its impact on the receivable position are monitorables.

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