| Sterlite Grid 16 Limited | ||
| Rating placed on 'Watch Developing' | ||
| Rating Action | ||
| ||
| 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 |
CRISIL Ratings has placed its rating on non-convertible debentures (NCDs) of Sterlite Grid 16 Ltd (SGL 16) on ‘Rating Watch with Developing Implications’.
The rating centrally factors in the strong linkages of SGL 16 with its parent, Sterlite Power Transmission Ltd (SPTL; ‘CRISIL A/CRISIL A1/Watch Developing’). SGL 16 is a wholly owned subsidiary of SPTL and does not have any operations as of now. The rating action follows similar rating action on SPTL.
CRISIL Ratings has placed its ratings on the bank facilities of Sterlite Power Transmission Limited (SPTL) on ‘Rating Watch with Developing Implications’.
The rating watch follows the announcement by SPTL that it has filed an application of the Scheme of Demerger with the NCLT on 10th October 2023. By way of demerger scheme SPTL will transfer its infrastructure business which includes Engineering, Procurement and Construction (‘EPC’) contracts for construction of power transmission lines and its investments in various transmission SPVs in India and Brazil into Sterlite Grid 5 Limited (SGL 5), currently a wholly owned subsidiary of STPL, subject to receipt of required approvals. Accordingly, the Products and MSI businesses (collectively called solutions business) will be retained by STPL.
As part of the scheme, SPTL has also filed to issue shares in a 1:1 ratio to SPTL’s existing shareholders and consequently SGL 5’s shareholding will mirror SPTL. The demerger is intended to simplify business structure, unlock the value of infrastructure business for more growth opportunities and to have more flexibility in accessing growth capital. SPTL is also in advanced stage of discussion with investors for partnership in the demerged infra business.
The overall demerger process is expected to be completed in approximately 6 months from the date of filing of the Scheme with the NCLT i.e., by April 2024. The Appointed Date of the Scheme shall be January 01, 2023.
CRISIL Ratings would analyse the impact of demerger on the credit risk profile of SPTL once the segregated financials are available for detailed analysis. CRISIL Ratings understands that a portion of the rated facilities may move under the resulting company, subject to requisite approvals. Thus, CRISIL Ratings will continue to closely monitor the said transaction and will remove the ratings from watch and take a final rating action once there is clarity on movement of these rated facilities and/ or when transaction is concluded. That said, SPTL will continue to meet the debt servicing obligations on all the rated instruments meanwhile.
SPTL’s EBITDA and EBITDA margins from operations improved to Rs 558 crores in 14.1% respectively in fiscal 23 (fiscal 2022: Rs 337 crore, 8.8%). The improvement was largely aided by strong uptick in margins across segments including products, MSI and EPC business. Strong order book of ~Rs 5,200 crore as on March 31, 2023, indicates healthy revenue visibility in coming quarters.
The ratings continue to reflect the strong business risk profile of SPTL, backed by its established market position in the power transmission and solutions segments, healthy operating efficiency, and comfortable financial risk profile because of adequate debt protection metrics. These strengths are partially offset by exposure to project execution risk.
The rating on the Rs 200 crore NCDs of SGL 16 factors in the unconditional and irrevocable corporate guarantee by SPTL. The rating also considers the strong managerial, financial and operational support SGL 16 expects from SPTL.
The guarantee and undertaking together cover the principal, interest and other monies payable on these facilities. For the NCDs, the payment mechanism is administered by the debenture trustee to ensure timely payment. For the guaranteed bank facilities, the guarantor (SPTL) needs to ensure that the designated account is funded at least five business days prior to the debenture payment date. If the designated account is not funded at least three business days prior to the due date, the trustee will immediately demand the guarantor to fund the same. Any adverse movement in the credit risk profile of the guarantor and non-adherence to the payment mechanism are key rating sensitivity factors. |
CRISIL Ratings has applied its criteria on rating instruments backed by guarantees.
CRISIL Ratings has also applied its parent notch-up framework to factor in support available to SGL 16 from SPTL. |
Key Rating Drivers & Detailed Description Strengths: Structured payment mechanism As per the undertaking for NCDs, SGL 16 will deposit funds into the designated account at least five business days before any coupon payment or redemption date. If SGL 16 fails to do so, the guarantor will make the requisite payment three business days prior to the final date of payment.
The payment structure is designed to ensure full and timely payment to the lender. The guarantee will remain unaffected even if SGL 16 faces bankruptcy or in case of dissolution, insolvency or liquidation; or on winding up proceedings initiated by, or against, the issuer.
Strong support from the parent SGL 16 benefits from the operational and financial support from SPTL, which holds a 100% stake and complete management control over SGL 16. SPTL is likely to extend managerial as well as need-based and timely financial support to SGL 16.
Weakness: Exposure to refinancing risk The NCDs have bullet repayment after 18 months. This exposes the company to refinancing risk. The management plans to utilize SPTL’s internal accrual or the proceeds from the sale of its transmission assets to repay the debt in the short term. Timely completion of such sale will be a key monitorable. |
Liquidity: Adequate SPTL prepaid its long-term debt by utilising the proceeds from the sale of NER II and IndiGrid units. Other than the outstanding Rs 175 crore as on 31 March 2023 taken for cost overruns in a project, any further expansion in transmission assets is expected to be funded through internal accrual and external equity support. As on March 31, 2023, unencumbered cash balance stood at over Rs 400 crore and unutilised bank limit at Rs 330 crore. |
Rating Sensitivity Factors Upward/Downward factors
|
Adequacy of credit enhancement structure SPTL has provided an unconditional and irrevocable guarantee for the rated NCDs of Rs 200 crore, thus ensuring timely payment of the interest and principal obligations. |
Unsupported ratings: CRISIL A- CRISIL Ratings has introduced the 'CE' suffix for instruments with an explicit credit enhancement feature, in compliance with the Securities and Exchange Board of India circular dated June 13, 2019. |
Key drivers for unsupported ratings CRISIL Ratings has applied its parent notch-up framework to factor in the support received by SGL 16 from SPTL. |
About the Company SGL 16, incorporated in 2019, is a wholly owned subsidiary of SPTL. It does not have any operations. |
About the Group SPTL is a part of the Vedanta group, which has diversified interests across metals, mining and oil and gas. Twin Star Overseas Ltd (a Vedanta group entity) holds 71.4% stake in SPTL, while the remaining is with public shareholders.
In June 2016, the power infrastructure business of Sterlite Technologies Ltd (‘CRISIL AA/Negative/CRISIL A1+’) was demerged into a new entity, SPTL.
SPTL is one of the largest private sector companies in bid-out transmission projects in India. It has a track record of timely project execution even in difficult terrains. The company has monetised 11 of its projects in India and recorded healthy equity gains in most of them.
The company is one of the largest manufacturers of power conductors and cables and has diversified presence across power transmission solution segments such as power conductors, power cables and MSI.
In November 2020, SPTL merged with its wholly owned subsidiary, Sterlite Power Grid Ventures Ltd (SPGVL).
SPTL is also the co-sponsor of IndiGrid, which was originally sponsored by SPGVL in October 2016. In September 2020, Kohlberg Kravis Roberts was inducted as the co-sponsor of the trust. In August 2020, SPGVL sold 14.7% of its stake in IndiGrid for Rs 840 crore. While the company does not hold any stake in IndiGrid as on March 31, 2022, it continues to be the co-sponsor of the trust. |
Key Financial Indicators (for SGL 16)
Company has no operations.
Key Financial Indicators (for SPTL)
|
List of covenants
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
|