Rating Rationale
November 26, 2020 | Mumbai
Solar Edge Power and Energy Private Limited
'CRISIL A1' converted from provisional rating to final rating for STD
 
Rating Action
Rs.614.1 Crore Short Term Debt CRISIL A1 (Converted from Provisional Rating to Final Rating)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has converted its provisional rating assigned to short-term debt of Solar Edge Power and Energy Private Limited (SEPEPL) to final rating of 'CRISIL A1'. The acquisition of SEPEPL by funds, vehicles and/or entities managed and/or advised by  Kohlberg Kravis Roberts & Co. L.P. or its affiliates (together referred to as KKR)], as envisaged at the time of provisional rating, was completed in October 2020. CRISIL has obtained the following final documents for the transaction:

  • Demat statement reflecting acquisition of SEPEPL by Terra Asia Holdings II Pte Ltd (Parent)
  • Facility agreement
  • Letter of intent (LOI) provided by Parent

The executed documents are in line with the transaction terms at the time of provisional rating. Hence, CRISIL has converted the provisional rating to final.
 
The rating reflects strong revenue visibility from long-term power purchase agreement (PPA) and stabilised track record of operations and receivables. These strengths are partially offset by exposure to risks inherent in operating solar energy assets and moderate refinancing risk owing to financial flexibility and residual asset tail life.

Analytical Approach

CRISIL has analysed SEPEPL on a standalone basis.

Key Rating Drivers & Detailed Description
Strengths:
* Strong revenue visibility
SEPEPL houses three operational solar assets in Maharashtra, with an aggregate alternating current (AC) capacity of 130 megawatt (MW) (direct current [DC] capacity: 169 MW). All three projects have signed long-term PPAs with Solar Energy Corporation of India for 25 years at a fixed tariff of Rs 4.43 per kilowatt/hour for the entire tenor. This long-term agreement mitigates offtake risk and provides revenue visibility. Additionally, low historical receivable period (in fiscals 2019 and 2020) of less than 30 days from the due date provides stability to cash flow.
 
* Stabilised track record of operations and receivables
The projects achieved commercial operations in April 2018. They have a satisfactory operational track record of more than two years and annual plant load factor (PLF) of 16.9% for fiscal 2020 and 16.7% for the 12 months through October 2020, which is higher than P90 estimate of 16.4% for fiscal 2020 (after adjusting for estimated annual degradation).
 
Weaknesses:
* Moderate refinance risk
SEPEPL has refinanced its existing loan facilities through a one-year, short-term bank loan facility (rated facility) of Rs 614.1 crore. At maturity, there will be a bullet repayment of around Rs 590 crore. Refinance risk of the bullet repayment is moderate due to residual tail period of the project and PPA of over 20 years after the tenor of the rated facility. The risk is further mitigated by the potential financial flexibility accessible by SEPEPL as an affiliate of KKR. KKR has assets under management of over US$ 221 billion  (Rs 15.5 lakh crore) as on June 30, 2020 and KKR's infrastructure strategy includes renewables with a portfolio of about 10,000 MW in various geographies including the US, Spain, France and Canada. India is a key part of KKR's Asia infrastructure strategy, and the acquisition of SEPEPL is the second investment in the country under this strategy. Additionally, as a part of the sanctioned terms for the rated facility, SEPEPL's immediate holding company, Terra Asia Holdings II Pte Ltd (also referred to as the 'Parent'Â?), an affiliate of KKR, has provided an LOI conveying its intent to support SEPEPL in arranging funds for the repayment of the rated facility by SEPEPL on or prior to the maturity date of the rated facility.  That said, CRISIL will continue to monitor the bullet repayment plan and this shall be a key rating sensitivity factor.
 
* Exposure to inherent risks associated with renewable energy generation
Solar power generation depends on irradiation levels at a given location. Changes in average temperature around the plant's location may affect power generation. Furthermore, ultraviolet exposure and weather cycles lead to degradation in solar panels. Lower irradiation and higher degradation than projected shall cause decline in PLF, thus impairing the overall debt service cushion.
Liquidity Adequate

SEPEPL is expected to have sufficient liquidity, driven by cash flow of Rs 95 crore during the rated loan tenor (12 months from October 2020) against debt obligation of around Rs 70 crore. Bullet repayment of around Rs 590 crore at the end of the tenor is expected to be refinanced by way of long-term bank loan. For the purpose of refinance, balance asset life of over 20 years will be available after the maturity of the rated facility as well as potential financial flexibility accessible by SEPEPL as an affiliate of KKR. The Parent is also providing a LOI conveying its intent to support SEPEPL in arranging funds for the repayment of the rated facility by SEPEPL on or prior to the maturity date of the rated facility.  One-quarter debt service reserve has been built up and there was a cash balance of about Rs 21 crore as on the date of acquisition (October 22, 2020), which can be utilised for any financial exigencies.

Rating Sensitivity factors
Upward factors
* Better performance as compared to P90 of 16.3% (net P90 in fiscals 2021 and 2022)
* Faster-than-planned deleveraging
 
Downward factors
* Delay in initiating the refinance plan by more than six months from first disbursement
* Delay in finalising the refinance plan by over nine months from first disbursement
* Weakening of operational performance below projected net P90 of 16.3%
About the Company

KKR acquired SEPEPL from the Shapoorji & Pallonji group's infrastructure arm, SP Infra, in October 2020. SEPEPL houses three operational solar assets (commercial operation date: April 2018) in Maharashtra, with aggregate AC capacity of 130 MW (DC capacity: 169 MW).

Key Financial Indicators - SEPEPL (standalone; CRISIL-adjusted numbers)
As on / for the period ended March 31   2020 2019
Revenue Rs crore 113 103
Profit after tax (PAT) Rs crore -15 -15
PAT margin % -13% -15%
Adjusted debt/adjusted networth Times 2.7 2.9
Interest coverage Times 1.2 1.3

Any other information:
* As per terms of restricted payments, all surplus liquidity after debt servicing shall be retained in the project

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 Short Term Debt NA NA 7 to 365 days 614.1 Moderate CRISIL A1
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt  ST  614.10  CRISIL A1  12-10-20  Provisional CRISIL A1    --    --    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for rating solar power projects
CRISILs Criteria for rating short term debt
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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