Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the bank facilities and non-convertible debentures of Adani Green Restricted Group (AGRG) namely Prayatna Developers Pvt Ltd (PDPL), Parampujya Solar Energy Pvt Ltd (PSEPL) and Adani Green Energy (UP) Ltd (AGEUP) at ‘CRISIL AA/Stable’. 

 

Rating re-affirmation on AGRG factors an expectation of timely refinancing of the existing dollar denominated notes of USD 500 million, due for repayment in December 2024. Recent developments such as announced partnership with TotalEnergies (TE) for an equity investment of US$ 300 mn along with preparatory steps taken by the management for the upcoming refinancing establishes financial flexibility of Adani Green Energy Ltd. That said, CRISIL Ratings will continue to monitor traction on refinancing plan being in place as per Financing Agreement (i.e. before 12 months prior to due date of bullet repayment in December 2024).

 

The rating reaffirmation continues to reflect strong revenue visibility for AGRG in the form of long-term power purchase agreement (PPA) at a healthy tariff, co-obligor structure of special purpose vehicles (SPVs) providing diversity benefit, healthy financial risk profile with robust debt service coverage ratio (DSCR) and restricted payment and cash trap conditions. These strengths are partially offset by exposure to risks inherent in operating solar-energy assets and adverse movement in foreign exchange (forex).

 

Further, any adverse regulatory/ government action in the wake of earlier published Hindenburg research report, emerging issues around corporate governance, ongoing investigations ordered by Supreme Court of India or a decline in group’s resource raising capabilities from banks or capital markets will be key monitorable.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of the three SPVs in AGRG in-line with CRISIL Ratings’ criteria for rating entities in homogeneous groups and equated the rating of the individual SPVs to the group. The three entities consolidated as AGRG are PDPL, PSEPL and AGEUP. The entities are in a homogeneous group since they are in the same line of business of operating solar power assets, have common management and treasury team and are critical to AGRG. Each of the SPVs acts as a co-obligor to the other. Post debt servicing in each SPV, excess cash flows are largely available for use across the group. Any deviation in this understanding shall be a key rating sensitivity factor.

 

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:

• Strong revenue visibility and low offtake risk: All 930 MW projects within AGRG SPVs have 25-year PPAs with more than 8 counterparties. Moreover, 57% of capacity has central counterparties such as Solar Energy Corporation of India and National Thermal Power Corporation. All projects have warranty for solar modules against manufacturing defects for 10 years.

 

The PPAs have fixed tariff throughout their tenure of 25 years from start of commercial operations ranging from Rs 4.4/ kWh to Rs 6.0/ kWh. This lends high revenue visibility and stability to cash flow with low demand risk

 

• Co-obligor structure of SPVs provides diversity benefit: All projects within one SPV are co-obligors for projects in the other two SPVs. The group having 28 projects has diversity with presence in 8 states and PPAs with more than 8 counterparties. With the presence of this co-obligor structure, surplus cash flows after debt servicing in any SPV will be available to fund the shortfall in other SPVs, thus supporting the consolidated DSCR. Additionally, as part of structure conditions, SPVs have undertaken in the corporate guarantee documents, that if there is any distributable surplus amount in any SPV, then it shall first be utilised to make good any shortfall in debt servicing or maintenance of reserves in other SPVs before distribution to Adani Green Energy group or any other Adani group entities

 

AGRG is separated from the rest of the Adani Green Energy group. This is because all payments and distributions to Adani Green Energy group from AGRG can happen only after satisfaction of restricted payment conditions. This separation is further strengthened by conditions such as all AGRG SPVs to have 2 independent directors who will have a veto for any voluntary solvency declaration and any loans from Adani group entities to AGRG SPVs to be subordinate to senior secured debt and not to have rights to declare solvency and default during the tenure of their facilities.

 

• Restricted payment and cash trap conditions: Restricted payment conditions, which are part of structure conditions provide extra liquidity in response to any stress in performance of AGRG SPVs from operations, receivables, or adverse forex movement. Three key restricted payment conditions (for any distributions/ payments to rest of Adani Green Energy group) which are part of structure are for Project Life Coverage Ratio (PLCR) to be above 1.6, DSCR to be above 1.35 and Fund from Operations to Net Debt (FFO/ Net Debt) above 6%.

 

PLCR covenant is a forward-looking ratio wherein discounted value of projected future earnings before interest tax depreciation and amortisation (EBITDA) is evaluated against outstanding debt. Future cash flow projection will be based on latest available resource assessment report, which would be done as per fixed methodology from consultants. This will address any downside to assumption of repowering and arresting of degradation. Moreover, if there is any permanent loss in generation capability reflected in reduction of PLCR below 1.6, then it is expected that surplus cash after debt servicing will be used for debt reduction at the earliest available opportunity as per stated policy. Non-adherence to these conditions and covenants shall be a rating sensitivity factor.

 

• Healthy financial risk profile: The 930 MW projects have capacity weighted average vintage of over 4 years, providing useful life of well over 15 years after the USD Notes. AGRG SPVs are expected to have healthy average consolidated DSCRs at P90 PLFs over the tenure of the debt. Besides this there is adequate liquidity of over 8 months, in form of a) two quarter DSRA (debt service reserve account) and b) working capital limits of Rs 100 crore. This is to cater to any adverse events.

 

AGRG has a healthy business risk profile on account of diversity of location and counterparties within its portfolio. It also has strong revenue visibility on account of 25-year PPAs at fixed tariffs with more than 8 counter-parties.

 

Weaknesses:

• Refinancing risk over the medium term: Total borrowings in AGRG comprises of more than 75% debt in the form of USD Notes, which have bullet repayments in December 2024. Refinancing risk is expected to be low on account of healthy business profile (driven by diversity and track record of asset operations) and residual project life of over 19.5 years on weighted average of assets in AGRG.

 

Post the Hindenburg Research report on Adani Group there has been an increased scrutiny on the group as reflected through ongoing SEBI investigation. Additionally, there has been impact on financial flexibility of the group as reflected by fall in market capitalization of listed companies (as compared to levels before January 24, 2023). This may lead to challenges in securing fresh funding for the group. That said, refinancing risk of USD notes of AGRG has been mitigated till date on account of strong business profile of AGRG assets, partial recovery in market capitalisation of listed entities in Adani group and steps taken such as repayment of share backed promoter financing by the group.

 

However, any adverse regulatory/ government action in the wake of the research report, emerging issues around corporate governance, or a decline in group’s resource raising capabilities from banks or capital markets will be a key monitorable.

 

Moreover, as per terms of financing agreements, refinancing plan must be put in place 12 months prior to due date of bullet repayment. CRISIL Ratings will closely monitor the developments on the timelines for this refinancing plan and same will be key rating sensitivity factor.

 

• Exposure to inherent risks associated with renewable energy generation: The PLF for solar power projects is exposed to variability in climatic conditions and equipment and evacuation related risks. Given that the sensitivity of cash flow of a solar power project is highest for PLF, these risks could severely impair debt-servicing and free cash flows of such projects.

 

The group has undergone a yield reassessment and there has been revision in the P90 PLFs. Weighted average performance of the projects stood at 23.26% which was above the revised P90 of 22.93% for fiscal 2023. PLF performance was above P90 levels in trailing twelve months ending August 2023. The group also undertakes additional repowering on an ongoing basis for maintaining the operational performance and avoiding any degradation losses in future as per the terms of the financing agreements. CRISIL Ratings will continue to monitor the PLF and adequacy of cash for debt servicing of the SPVs.

Liquidity: Strong

AGRG has maintained DSRA equivalent to 2 quarters of debt servicing equivalent to Rs. 290 crores as on August 31, 2023, in the form of fixed deposits. Additionally, the RG also has cash and cash equivalents of ~Rs. 570 crores as on August 31, 2023.

 

AGRG SPVs are expected to have strong liquidity driven by cash flow for debt servicing of close to Rs 790 crore in fiscal 2024. The SPVs are expected to have debt servicing requirements of less than Rs 500 crore this fiscal. Further, timely refinancing of the USD notes that are due for refinancing by December 2024 remains a critical rating sensitive factor.

Outlook: Stable

CRISIL Ratings believes that the ratings will continue to benefit from the sustained performance and long-term PPAs of AGRG projects.

Rating Sensitivity factors

Upward factors:

• Sustained performance of overall portfolio better than P75 PLF. 
• Faster-than-expected deleveraging to average DSCR of around 1.60 at P90 PLF at CRISIL Ratings sensitised projections

 

Downward factors:

• Inordinate delay in arranging refinancing plan (in line with guidance laid out by the management) of bullet repayment of USD notes
• Sustained lower-than-anticipated performance or stretch in payment cycle to more than 100 days or adverse movements in hedging cost
• Non-adherence to the conditions of the structure such as information covenants, repowering and hedging and PLCR

Unsupported ratings - CRISIL AA

Unsupported rating disclosure for ratings without ‘CE’ suffix, where the instruments are backed by specified support considerations, is in compliance with SEBI’s circular dated September 22, 2022.

Key drivers for unsupported ratings

CRISIL Ratings has combined the business and financial risk profiles of all SPVs under AGRG (together referred as the group) and has equated the ratings with that of the group. This is driven by expected high fungibility of cash flows across all SPVs and timely support to all SPVs at the time of distress for any debt repayments. The Management’s intention to have high fungibility is also supported by cross guarantees across the SPVs, presence of TRA waterfall mechanism, mandatory cash sweeps/ traps, cross default clauses and other financial covenants. Consequently, unsupported and supported ratings, with the cross guarantees, stand at the same level and are equated to that of the group.

About the Company

AGRG has solar power projects of 930 MW. It comprises of 3 SPVs of Adani Green Energy Ltd namely PDPL, PSEPL and AGEUP. PDPL, PSEPL and AGEUP have 220 MW, 420 MW and 290 MW operational solar power projects, respectively.

Key Financial Indicators - AGRG (Consolidated; CRISIL Ratings adjusted numbers)

As on / for the period ended March 31		2023	2022
Revenue#	Rs crore	904	914
Profit after tax (PAT)	Rs crore	40	-1
PAT margin	%	4.4	-0.1
Adj debt/adjusted networth	Times	5.1	10.6
Interest coverage*	Times	1.6	1.6

#Revenue from operations only considered,

*Interest on senior debt is considered

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Rupee term loan	May-19	NA	Mar-34	175	NA	CRISIL AA/Stable
INE127V07016	Non-convertible debentures	3-Feb-22	6.82%	31-Dec-24	66.2	Complex	CRISIL AA/Stable
INE127V07024	Non-convertible debentures	3-Feb-22	7.30%	31-Dec-26	55.3	Complex	CRISIL AA/Stable
INE127V07032	Non-convertible debentures	3-Feb-22	7.65%	31-Dec-29	84	Complex	CRISIL AA/Stable
INE127V07040	Non-convertible debentures	3-Feb-22	7.75%	31-Dec-31	56	Complex	CRISIL AA/Stable
INE127V07057	Non-convertible debentures	3-Feb-22	7.85%	31-Mar-34	38.19	Complex	CRISIL AA/Stable
NA	Non-convertible debentures*	NA	NA	NA	502	Complex	CRISIL AA/Stable

*Yet to be issued

Annexure – List of entities consolidated

Name of company	Extent of consolidation	Rationale for consolidation
Prayatna Developers Pvt Ltd	Full	Co-obligor structure with cash flow fungibility
Parampujya Solar Energy Pvt Ltd	Full	Co-obligor structure with cash flow fungibility
Adani Green Energy (UP) Pvt Ltd	Full	Co-obligor structure with cash flow fungibility

All Entities above are part of a homogeneous group