Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the bank facilities and non convertible debentures of India Grid Trust (IndiGrid), an infrastructure investment trust (InvIT).

 

IndiGrid has announced the acquisition of 100% of ReNew Solar Urja Pvt Limited (RSUPL). The deal is expected to be valued ~Rs. 1,650 crore subject to regulatory approvals and closing adjustments. This includes the debt of around Rs 1000-1100 crore present at asset level. The pending consideration amount is likely to be funded through debt. This acquisition will lead to the ratio of net debt to assets under management (AUM) going up to ~62.5% from ~60.6% at present. Post the acquisition of Virescent Renewable Energy Trust on 25th August 2023, the trust has raised equity of Rs. 1073 crore this fiscal and has used this to prepay debt. The ratio will remain 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 1.3 times, in line with the rating category.

 

RSUPL, has a solar asset of 300 megawatt (MW; AC). The solar asset has residual power purchase agreements (PPAs) of ~23 years with SECI as the counterparty, ensuring long-term cash flow visibility. Operational performance in terms of plant load factor (PLF) has been better than the P90 value. Post-acquisition of RSUPL, solar AUM accounts for around 20% of the total AUM of IndiGrid.

 

IndiGrid has also received letter of intent for the construction of two greenfield interstate transmission projects won through the Tariff Based Competitive Bidding (TBCB) route. Both projects are to be developed on Build, Own, Operate and Transfer (BOOT) basis for 35 years. The two projects have a construction timeline of two years and total estimated capital expenditure (capex) of ~Rs. 1000 crore.

 

While IndiGrid has entered the renewable and project development segments, it will continue to get majority of its cash flows from operational power transmission assets. As the renewable sector is riskier than the highly stable power transmission sector, CRISIL Ratings will continue to closely monitor further diversification and its impact on the credit profile of IndiGrid.

 

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 factors in the 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 debt.

[1]The 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 and 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 and 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 and 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 PLF remains susceptible to variability in climatic conditions and risks pertaining to equipment and evacuation. However, as power transmission constitutes around 80% of the trust’s assets, revenue should 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 proportionately distributed among all ISTS licensees. Despite weak counterparties, the CTU has maintained strong collection efficiency, reflecting 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 in fiscal 2022 have 25-year PPAs 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.

 

The solar assets of VRET are operational with a track record of healthy performance. They have entered into long-term PPAs with central and state distribution companies (discoms). Healthy collection efficiency, given the weak financial health of state discoms, will be a key monitorable.

 

The solar asset of RSUPL is operational for two years with a track record of healthy performance. the asset has ~23 years of PPA term left and has SECI as the counterparty.

 

• Robust financial risk profile: The financial risk profile of IndiGrid is driven by stable cash accrual, healthy net debt to AUM ratio, a comfortable DSCR and a three-month DSRA.

 

Consolidated debt of around Rs 17.676 crore as on December 31, 2023, included:

Bullet loans of Rs 2,150 crore, of which Rs 300 crore, Rs 150 crore, Rs 850 crore, Rs. 250 crore, Rs, 450 crore and Rs 150 crore mature in fiscals 2026, 2027, 2028, 2029, 2030 and 2031, respectively.

• Bullet NCDs of Rs 5,435 crore include NCDs of Rs 400 crore, Rs 700 crore, Rs 900 crore, Rs 850 crore, Rs 500 crore, Rs 685 crore, Rs. 250 crore, Rs 750 crore and Rs 400 crore maturing in fiscals 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031 and 2032, respectively
• NCDs of Rs 2,790 crore with repayments spread over fiscals 2025 to 2041.
• Public NCDs of Rs 1,000 crore with varying maturities through fiscals 2025 to 2032.
• Term loans of around Rs 4,655 crore with ongoing amortising repayment
• Term loan of Rs 1,646 crore with ongoing amortising repayment and a 58% bullet repayment in fiscal 2037

 

Sizeable and stable cash accrual should support healthy DSCR over the medium term. Furthermore, DSRA/interest service reserve account (ISRA) equivalent to three months of principal and interest obligations is 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.

 

The 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:

• Operations and maintenance (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. Three 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 in advance for bullets repayments. Earlier, as per the policy, the trust used to arrange refinancing three months in advance. However as banks and other investors including pension funds can invest in InvITs, they offer increased avenues for raising funds. Hence, the trust would refinance the debt at best available rates on a timely basis.

 

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 average DSCR of above 1.3 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 favorable terms. IndiGrid had a cash balance of ~Rs. 1300-1400 crore, which includes DSRA/Lien fixed deposit (FD) of ~450-500 crore as on December 31, 2023. 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:

• Sustained fall in line availability below 98%, weakening cash flow
• Delay in collection under the PoC mechanism
• Lower-than-expected DSCR
• Inability to refinance debt in a timely manner

 

Key monitorable

Given the nature of the InvIT platform, the trust will acquire new assets going forward. The quality of assets, funding of 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 and Khargone Transmission Ltd. In fiscal 2022, the trust acquired two solar assets with combined capacity of 100 megawatt and an under-construction transmission asset. In fiscal 2024, the trust acquired Virescent Renewable Energy Trust along with its investment manager and project manager. It had AUM of Rs 26,881 crore as on September 30, 2023.

 

IndiGrid was originally sponsored by SPTL (erstwhile, Sterlite Power Grid Ventures Ltd). As of September 2020, Esoteric II Pte Ltd, an affiliate of KKR, has been inducted as the co-sponsor of the trust and as on July 2023 SPTL has been de-registered as a sponsor.

 

KKR is a leading global investment firm with 45 years of experience. It manages assets worth over USD 500 billion (as of December 2022) 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.

Any other information: Not Applicable