| India Grid Trust | ||||||||||||||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||||||||||||||||
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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 assigned its ‘CRISIL AAA/Stable’ rating to Rs.1140 crore Non-convertible debentures (NCDs) of India Grid Trust (IndiGrid), an infrastructure investment trust (InvIT). The new NCDs will be utilized to refinance the existing debt and will be raised for a tenor of 18 years. Further, CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the remaining non-convertible debentures and bank facilities of the trust.
The trust has completed the acquisition of Khargone Transmission Ltd (KTL) from Sterlite Power Transmission Ltd (SPTL; ‘CRISIL A/Negative/CRISIL A1’) at an enterprise value of around Rs 1,500 crore. The net debt to assets under management (AUM) ratio is estimated to have increased to ~61% as on March 31, 2023 from 58% as on December 31, 2022. However, the ratio will remain well within the cap of 70% set by the Securities and Exchange Board of India (SEBI). Post-acquisition, the debt service coverage ratio (DSCR) should be healthy at over 1.2 times, in line with the rating category.
In November 2022, IndiGrid had acquired an operational interstate transmission asset, Raichur Sholapur Transmission Co Ltd, at around Rs 250 crore; the acquisition was entirely debt funded.
In fiscal 2022, the trust completed the acquisition of two solar assets from Fotowatio Renewable Ventures, a Madrid-based developer. The Andhra Pradesh-based assets have an operational track record of around two years, with Solar Energy Corporation of India (SECI) as the counterparty. The enterprise value of the acquisition, estimated at Rs 660 crore, was funded through debt raised in IndiGrid. Post-acquisition, solar assets under management (AUM) are still less than 4% of the total AUM of IndiGrid. In addition to expanding its portfolio in the transmission segment, the trust plans to acquire more operational solar assets.
Further, during fiscal 2022, IndiGrid won a project to set up a transmission system in Maharashtra. The project cost of around Rs 170 crore is less than 1% of AUM of IndiGrid. It has limited execution risk as it involves the construction of a substation and a transmission line of only 15 circuit kilometre.
While these mark the entry of the trust into the renewable and project development spaces, it will still largely specialise in the operational power transmission space. Given that the renewable sector is riskier than the highly stable power transmission sector, CRISIL Ratings will continue to closely monitor any further diversification.
The rating continues to reflect the stable revenue of the trust, with almost all underlying transmission special purpose vehicles (SPVs) operating under the point of connection (PoC) mechanism. This, along with a healthy track record of maintaining line availability higher than normative levels and 35-year transmission service agreements (TSAs), ensures steady cash flow. The rating also considers strong financial risk profile and debt service reserve account (DSRA)[1] equivalent to three months of principal and interest obligations of IndiGrid and its SPVs. These strengths are partially offset by exposure to operations and maintenance (O&M) risks for the underlying transmission assets and refinancing risk for the debt. [1]The interest service reserve account (ISRA) for debt contracted in IndiGrid, which has a 100% bullet repayment on maturity. No DSRA/ISRA to be created for the MLDs as they do not have any obligation until the final maturity date. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of IndiGrid with its underlying SPVs as the trust has direct control over these entities and will provide need-based support during any exigency. Furthermore, the SPVs have to mandatorily dispense 90% of their net distributable cash flow (after meeting debt obligation) to the InvIT, leading to highly fungible cash flow. Also, as per extant regulations, the cap on borrowing of an InvIT has been defined at a consolidated level (equivalent to 70% of the value of the InvIT assets).
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: Steady revenue of underlying operational assets All transmission SPVs have a track record of over two years of healthy transmission line availability. Their revenues are driven by their TSAs, which ensure payment of stipulated tariff subject to achievement of normative line availability of 98% per annum.
Revenue of a transmission SPV is completely delinked from the power demand-supply situation and volatility in electricity prices. Moreover, factors affecting line availability, such as unchecked vegetation, lightning or high ambient temperature causing wear and tear of insulators leading to flashovers are routine. These issues do not entail a significant cost and are easily rectifiable, thereby minimising outage time. Furthermore, any outage due to extreme weather conditions, cyclones or excessive lightning is usually classified as an act of God. It is covered under the force majeure clause of the TSA and thus does not impact line availability.
Revenue from solar SPVs will depend on radiation levels. The plant load factor remains susceptible to variability in climatic conditions and risk pertaining to equipment and evacuation. However, as power transmission constitutes around 95% of the trust’s assets, revenue is likely to remain stable over the medium term.
Strong collection efficiency of central transmission utility All SPVs (except Jhajjar KT Transco Pvt Ltd [Jhajjar]) under IndiGrid are interstate transmission system (ISTS) licensees and come under the PoC pool mechanism, where the central transmission utility (CTU) collects monthly transmission charges from all designated ISTS customers on behalf of the licensees. All ISTS licensees are then paid their share of transmission charges from the centrally collected pool. This method diversifies counterparty risk, as the risk of default or delay by a particular customer is distributed among all ISTS licensees in proportion to their share. Despite weak counterparties, the CTU has maintained strong collection efficiency, which reflects its high bargaining power. The SPVs of IndiGrid will continue to benefit from the strong collection efficiency of the CTU and diversification of the counterparty risk under the PoC pool mechanism.
Jhajjar is an intrastate transmission asset with Haryana Vidyut Prasaran Nigam Ltd as its counterparty. It has an eight-year track record of collecting payments within 15 days of billing.
The two solar assets acquired recently have signed 25-year power purchase agreements with SECI at a tariff of Rs 4.43 per kilowatt hour for the entire tenure. The assets have an operational track record of over two years.
Robust financial risk profile The financial risk profile is driven by stable cash accrual, healthy net debt to AUM ratio, comfortable DSCR and a three-month DSRA.
Consolidated debt as on February 28, 2023 was around Rs 14,591 crore. This included:
Sizeable and stable cash accrual should support healthy DSCR over the medium term. Furthermore, DSRA/ISRA equivalent to three months of principal and interest obligations is being maintained for the debt raised at IndiGrid and its SPVs.
Terms of debt also include a cash trap mechanism, wherein if the DSCR falls below 1.11 times, excess cash generated is trapped until the DSCR is restored to 1.15 times. If the DSCR falls below 1.11 times for three consecutive years, cash in the trap account will be retained for the life of the instrument.
Financial risk profile is also supported by the expectation that distribution of cash flow from IndiGrid to its unitholders will occur only after the debt obligation is met.
Future acquisitions by IndiGrid and their impact on the financial risk profile remain key monitorables.
Weaknesses: Modest O&M risk for SPVs Maintenance of high line availability is critical to ensure stability of revenue in the power transmission sector. Although O&M expenses form a small portion of revenue, improper line maintenance may lead to losses and weaken the loan repayment capability of the SPV. However, these risks are mitigated by low technical complexity and routine O&M activity, along with the appointment of an O&M contractor by the SPVs.
Exposure to refinancing risk IndiGrid has sizeable bullet repayments. Two of the debt instruments carry a clause wherein the coupon can be reset on the specified date, on mutual consent of the issuer and the investor. If a consensus is not reached, the issuer shall redeem the NCDs on the ensuing coupon reset date with a prior notice. While this amplifies the refinancing risk, it is partially offset by the debt structure that stipulates that IndiGrid should arrange for refinancing at least 30 days prior to the coupon reset date if a consensus is not reached.
Furthermore, the trust will arrange binding term sheets for all debt instruments six months in advance for bullets repayments of above Rs 500 crore and three months in advance for any other quantum.
The 35-year concession period for the underlying assets extending beyond the repayment tenure should enable the trust to comfortably refinance the bullet repayments and maintain a healthy DSCR. |
Liquidity: Superior Stable revenue and strong cash accrual will comfortably cover debt obligation over the medium term and ensure a healthy DSCR of above 1.2 times over the debt tenure. Moreover, the long life of underlying assets, extending well beyond the debt tenure, should aid refinancing of the bullet repayment on favourable terms. Maintenance of a three-month DSRA/ISRA also supports liquidity. |
Outlook: Stable IndiGrid will generate stable cash flow, backed by the ability of its transmission assets to maintain stipulated line availability and implementation of the PoC pool mechanism for billing and collection. |
Rating Sensitivity Factors Downward Factors
Key monitorable Given the nature of the InvIT platform, the trust will acquire new assets going forward. The quality of assets, the funding of the acquisitions and their impact on the credit risk profile of the trust will be key monitorables. |
About the Trust IndiGrid was set up on October 21, 2016, as an irrevocable trust pursuant to the trust deed under the provisions of the Indian Trusts Act, 1882, and was registered with SEBI as an InvIT on November 28, 2016, under Regulation 3(1) of the InvIT Regulations. The initial portfolio assets comprised Bhopal Dhule Transmission Co Ltd and Jabalpur Transmission Company Ltd. The trust has now acquired 13 more transmission assets: Purulia and Kharagpur Transmission Co Ltd, RAPP Transmission Co Ltd, Maheshwaram Transmission Ltd, Patran Transmission Co Ltd, NRSS XXIX Transmission Ltd, Odisha Generation Phase II Transmission Ltd, East North Interconnection Company Ltd, Gurgaon Palwal Transmission Ltd, Jhajjar KT Transco Pvt Ltd, Parbati Koldam Transmission Co Ltd, NER II Transmission Ltd, Raichur Sholapur Transmission Co Ltd & Khargone Transmission Limited. In fiscal 2022, the trust acquired two solar assets with combined capacity of 100 megawatt and an under-construction transmission asset. It had AUM of Rs 21,173 crore as on December 31, 2022.
IndiGrid was originally sponsored by SPTL (erstwhile, Sterlite Power Grid Ventures Ltd). As of September 2020, Esoteric II Pte Ltd, an affiliate of KKR & Co Inc (KKR; a US-based private equity firm), has been inducted as the co-sponsor of the trust.
KKR is a leading global investment firm with 45 years of experience. It manages assets worth over USD 429 billion (as of June 2021) and has interests across asset classes, including private equity, energy, infrastructure, real estate and credit; with strategic partners to manage hedge funds.
All decisions pertaining to acquisition, divestment or enhancement of IndiGrid’s assets are taken by the investment manager, IndiGrid Investment Managers Ltd, which is wholly owned by KKR.
For the nine months ended December 31, 2022 IndiGrid reported profit after tax (PAT) of Rs 329 crore on operating income of Rs 1733 crore against Rs 243 crore and Rs 1673 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Not yet issued |
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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 06-Apr-23 in line with the lender-wise facility details as on 30-Jul-21 received from the rated entity.
Criteria Details
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