Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable/CRISIL A2+’ ratings on the bank loan facilities of South East U. P. Power Transmission Company Limited (SEUPPTCL).

 

The reaffirmation factors in healthy operating performance of Group 1 of the project with higher than normative availability (98%), along with timely collection from the counter party. Furthermore, the order from Uttar Pradesh Electricity Regulatory Commission (UPERC) for revision in scope of under-construction Group 2 of the project and the revocation of erstwhile Preliminary termination notice for Group 2 reduce the uncertainty around the project. While the receipt of approvals has been slightly delayed, CRISIL Ratings understands work for Group 2 of the project is on track and this group is expected to be commissioned in fiscal 2025.

 

CRISIL Ratings notes that the scope of Group 2 has been reduced by around 40% given the significant delay in commissioning of the project under the erstwhile management. While this reduces exposure to construction risk, this is likely to result in pro-rata reduction in tariff for the group. Signing of supplementary transmission service agreement (TSA) for Group 2 is pending. Also, some key requisite approvals are awaited, including forest clearances and ROW (right-of-way). Progress on Group 2, along with timely receipt of approvals and clarity on the final tariff for the group, will be a key rating sensitivity factor.

 

Also, CRISIL Ratings notes Group 2A (~20% of Group 2) has been completed and is awaiting commission certificate from regulator. Receipt of the scheduled commercial operation date (SCOD) approval along with track record of timely billing and collection for the project will be key monitorable.

 

The ratings continue to reflect strong execution and operational support expected from The Tata Power Co Ltd (Tata Power; 'CRISIL AA/Positive/CRISIL A1+') through its wholly owned subsidiary, Tata Power International Pte Ltd (TPIPL), which is a shareholder of Resurgent Power Ventures Pte Ltd (Resurgent Power, new parent of the company); and expected financial flexibility because of the presence of strong sponsors of Resurgent Power (including Tata Power and ICICI Bank Pvt Ltd [ICICI Bank]). Resurgent Power acquired SEUPPTCL under NCLT (National Company Law Tribunal) on September 16, 2022, at enterprise value of ~Rs 6,600 crore, of which Rs 3,251 crore was paid towards one-time settlement against admitted claims of Rs 4,197 crore. While project cost allocated for Group 1 was Rs 2,600 crore, the balance was for Group 2. The remaining is allocated towards pending capital expenditure (capex) for completion of Group 2. The entire deal is to be funded in 75:25 debt to equity ratio.

 

These strengths are partially offset by exposure to significant implementation risks for Group 2 and moderate counterparty risk (distribution companies [discoms] of Uttar Pradesh), having comparatively weaker, albeit improving credit profiles, though the credit risk profile is supported by track record of payments to transmission assets (including SEUPPTCL) by the state discoms.

Analytical Approach

CRISIL Ratings has considered the standalone business and financial risk profiles of SEUPPTCL.

Key Rating Drivers & Detailed Description

Strengths:

• Stable revenue of Group 1 and low offtake risk under the TSA for Group 2 after project implementation: SEUPPTCL has a TSA with UP Power Transmission Company Ltd (UPPTCL), nominated by UP discoms under the TSA, wherein revenue is linked to availability of the transmission line, with full recovery of revenue at normative availability factor of 98%. Revenue is completely delinked from power demand-supply and volatility in the price of electricity. Moreover, factors affecting line availability, such as unchecked growth of vegetation, lightening, fog or high ambient temperature causing wear and tear of insulators and leading to flashovers do not involve significant cost and can be easily rectified, minimising outage time. Furthermore, any outage due to cyclones or excessive lightning is usually attributable to an act of God/grid unavailability and will not impact line availability. Group 1 of the project was commissioned in fiscal 2018 and has maintained above-normative line availability since 2019.

 

• Strong execution and operational support from Tata Power, and high financial flexibility owing to the strength of the shareholders: The company has been taken over by Resurgent Power, which is owned by Tata Power through its wholly owned subsidiary (26%), ICICI Bank (~10%) and various foreign sovereign funds (64%). Two of the three board members of SEUPPTCL are from Tata Power.

 

The company will continue to benefit from the strong know-how of one of its sponsors Tata Power, which has extensive experience in the power industry. The operations and maintenance (O&M) of the company will be managed by Tata Power, while EPC (engineering, procurement, and construction) is being undertaken by Tata Projects Ltd. Furthermore, the company enjoys financial flexibility because of the strong sponsors of Resurgent Power (including Tata Power and ICICI Bank).

 

Weaknesses:

• Project implementation risk for Group 2: Prior to acquisition by Resurgent Power, SEUPPTCL was under stress on account of significant delays in project commissioning driven by delayed approvals and the financial stress of the erstwhile promoters. Group I was commissioned in July 2017 against the revised scheduled commissioning date of December 2014. However, limited progress was made in Group 2, which got stalled in 2016. The company was admitted into NCLT in 2020.

 

Group 2 is exposed to implementation risk as CRISIL Ratings understands that only ~40% of the work iscompleted as on date. Preliminary termination notice for Group 2 stands withdrawn with revision in scope from ~953 km lines to ~616 km . Subsequently, cost has been reduced from ~Rs 4,000 crore to ~Rs 2,610 crore for Group 2, and revenue under TSA is expected to fall from ~67% to 40%. Furthermore, Group 2 is bifurcated into Group 2A (~8%) and 2B (~32%) with Group 2A awaiting its SCOD order and for Group 2B commissioning timelines are September 2025.

 

With Group 2A nearly complete, it has to sign supplementary TSA following which invoicing is expected to start. CRISIL Ratings understands that less than 1% of Group 2 is under forest area, however project completion within the timelines will be contingent upon the project receiving all approvals (~30% of approvals are pending, including forest and ROW clearances). While CRISIL Ratings factors that the  sponsors will provide adequate support for execution and any cover cost overruns in the project, completion of Group 2 capex without any material time and cost overruns will be a key monitorable. Equity infusion of Rs 75 crore (in the form of compulsory convertible debentures [CCDs]) was done in fiscal 2024 for timely completion of Group 2A.

 

• Moderately weak, albeit improving, counterparty credit risk profile: Revenue comes from the discoms of Uttar Pradesh, which have average credit risk profiles. Timely collection of dues is susceptible to the health of its counterparties, which can impact liquidity and debt servicing. Hence, SEUPPTCL faces moderate counterparty risk than an inter-state transmission licensee, wherein the counterparty risk is mitigated by the presence of a point-of-connection mechanism and strong collection efficiency. Here, the risk is mitigated by the presence of letter of credit-backed payment mechanism under TSA, relatively lower invoice amount than power generation companies that enable discoms to clear bills for transmission companies, and existence of intra-state pooling mechanism for the project. Receivables for Group 1 of the project were comfortable with the counterparty claiming regular rebate on early payment of invoices. However, timely collection of dues for Group 1 and for Group 2 post commissioning will remain a key monitorable.

 

• Exposure to modest O&M risk: Maintenance of high line availability is critical to the stability of revenue in the power transmission sector. Although the O&M expense forms a small portion of the revenue, improper line maintenance may lead to revenue loss and weaken loan repayment ability. These risks are mitigated by low technical complexity, routine nature of O&M activities and Tata Power’s experience in maintaining transmission lines.

Liquidity: Strong

Stable revenue and steady cash accrual from Group 1 should comfortably cover debt obligation over the medium term. Liquidity is supported by additional equity infusion of Rs 75 crore (CCDs) in fiscal 2024 along with debt service reserve account equivalent to three months of debt obligation and surplus cash available with the company. While the Group 2 funding mix is expected to take care of the estimated cost for completing the project, any cost overrun for future capex will be supported by the parent.

Outlook: Stable

The credit risk profile of SEUPPTCL will remain healthy over the medium term supported by its higher-than-normative line availability and timely collection under TSA for Group 1, along with expectation of achieving project closure for Group 2 without any significant time or cost overrun. In case of any cost overrun, support is likely from Resurgent Power.

Rating Sensitivity factors

Upward factors:

• Timely project completion without significant cost overrun and without material reduction in existing tariff beyond the decline in scope of work of Group 2
• Maintenance of line availability above 98% for Group 1
• Track record of timely payment from counterparties

 

Downward factors:

• Line availability below 98% on sustained basis for Group 1, weakening cash flow
• Higher-than-expected receivables
• Substantial time or cost overrun for Group 2 capex, resulting in larger-than-expected debt

About the Company

Incorporated on September 11, 2009, SEUPPTCL was a wholly owned subsidiary of Mainpuri Power Transmission Pvt Ltd. The transmission project was originally awarded to Isolux Corsan S A (Spanish entity) in July 2011 under tariff-based competitive bidding by UPPTCL. It has signed a TSA for 35 years from SCOD with four discoms in Uttar Pradesh to erect, commission and operate 765 kilovolt (kV) S/C Mainpuri-Bara line with 765kV/400kV substation in Mainpuri. The transmission network is around 616 km (earlier was 1,535 km). The setting up of the five substations is split into two phases. The project has been undertaken to evacuate power from a few thermal power plants and improve the reliability and quality of supply. Group I is operational since July 2017. Group 2 was revised in fiscal 2024 and spilt into two parts- 2A and 2B, with timelines of January 2024 and September 2025, respectively.

 

The company was subsequently acquired by Resurgent Power through a competitive bidding process under the Insolvency and Bankruptcy Code, 2016; the acquisition was completed on September 16, 2022.

About the Parent

Resurgent Power is a joint venture based in Singapore. TPIPL (a wholly owned subsidiary of Tata Power) owns 26% stake in Resurgent Power, ICICI Bank owns 10% and the balance 64% is held by other global investors.

Key Financial Indicators (Standalone; CRISIL Ratings-adjusted)

As on / period ended March 31	Unit	2023	2022
Revenue	Rs crore	357	469
Profit after tax (PAT)*	Rs crore	-1,305^	455
PAT margin	%	-365.9	97.0
Adjusted debt/adjusted networth	Times	1.78	3.34
Interest coverage*	Times	2.92	-

*Interest cost was not charged to profit and loss account in fiscal 2022

^Includes exceptional item of Rs 1,504.30 crore

Any other information: Not Applicable