| Torrent Solargen Limited | ||
| Rating reaffirmed at 'CRISIL AA / Stable' | ||
| Rating Action | ||
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| 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 |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable’ rating on the non-convertible debentures (NCDs) of Torrent Solargen Ltd (TSL).
The rating continues to factor in the strong financial, operational, and managerial support provided by the parent, Torrent Power Ltd (TPL; ‘CRISIL AA+/Stable/CRISIL A1+’). Further, it also factors in the low offtake risk and strong revenue visibility with the entire capacity tied-up with the Maharashtra State Electricity Distribution Company Ltd (MSEDCL) and Solar Energy Corporation of India (SECI) through long-term power purchase agreements (PPAs). The rating also factors in the low counterparty credit risk with expectation of timely payments. Furthermore, the rating reflects the company’s healthy financial risk profile, driven by comfortable debt service coverage ratio (DSCR).
These strengths are partially offset by exposure to risks inherent in operating wind energy assets and those related to stabilisation (for the asset with SECI as counterparty). Ramp up in generation with healthy plant load factors (PLFs) will be a key monitorable. |
Analytical Approach CRISIL Ratings has used its criteria for rating wind power projects (WPPs). Furthermore, CRISIL Ratings has applied its parent notch-up framework to factor in the support available to TSL from its parent TPL (TPL owns 100% equity stake in TSL). |
Key Rating Drivers & Detailed Description Strengths: Strong support available from the parent TPL maintains a strong oversight on the operations of its wholly owned subsidiary, TSL. The parent has extended support via equity and unsecured loans (Rs 80 crore and Rs 452 crore [including accrued interest], respectively, as on March 31, 2023), against the combined project cost of ~Rs 1,638 crore (pertains to the 126 megawatt {MW} project with MSEDCL and the 116.1 MW project with SECI). The MSEDCL project was earlier funded entirely through unsecured loans from promoters, and the funds have been partly repaid through issuance of NCDs worth Rs 550 crore. For the SECI project, TPL has provided unsecured loans (including accrued interest) and equity of ~ Rs 225.7 crore while the rest was funded through a capital expenditure (capex) letter of credit [LC] (sanction of ~Rs 693 crore, out of which ~Rs 640 crore is outstanding as on date). Further, on expiry of the capex LC in October 2024, TPL is expected to infuse further equity, while ~Rs 605 crore would be refinanced through long term debt or internal accruals. TPL also exercises managerial control and provides technical inputs to the entity. Any change in support stance from the parent will be a key rating sensitivity factor.
Strong revenue visibility and timely collection of receivables for the operational asset TSL currently has two wind projects with a combined installed capacity of 242.1 MW. Of these, the 126 MW project, for which NCDs have been issued, is operational since December 2019. TSL has executed a 25-year PPA with MSEDCL, which offers revenue visibility with an assured offtake at Rs 2.87 per unit for the entire power generated. Bills have also been broadly realised on time, with the collection period ranging from 10 to 20 days past the due date. The second wind project with installed capacity of 116.1 MW, tied up with SECI (PPA signed for 115 MW), was fully operationalised on July 15, 2023. Payments are expected to be received on time for this project given the strong counterparty. Nevertheless, any significant build-up of receivables will remain a key rating sensitivity factor.
Presence of trust and retention account (TRA) with waterfall mechanism for NCDs, prioritising external debt over promoter loans The NCDs are backed by a mechanism, wherein all cash flows from the MSEDCL project will be routed through the TRA. The waterfall structure shall ensure that servicing of external debt is prioritised over any payout to promoters (including interest or principal payment on the unsecured loan). Further, the company plans to create a debt service reserve account (DSRA) covering three months of interest and principal payments, and thus, have a liquidity buffer against short-term cash flow mismatches. Any surplus cash from the TRA account can be withdrawn only on half-yearly basis, providing further support to liquidity buffers for the asset.
For the SECI project as well, CRISIL Ratings understands that external debt obligations will be similarly prioritised, though there is no TRA mechanism currently in place.
Weaknesses: Moderate operating performance in the MSEDCL asset Wind asset with MSEDCL as counterparty, located in Osmanabad, Maharashtra, was commissioned in December 2019 and is now operational for over three fiscals. The PLF has improved to 30.1% in fiscal 2023 from 27.5% in fiscal 2021. However, the PLF remained well below P90 level, mainly owing to lower wind resource availability. The company’s ability to enhance its operating performance, with PLF improving from current levels will remain a key rating monitorable.
Exposure to stabilisation risk in the recently commissioned project The company’s WPP with installed capacity of 116.1 MW (accounting for ~ 48% of TSL’s total capacity) was commissioned on July 15, 2023, and resultantly, the asset remains exposed to stablisation risk. However, healthy generation potential and prudent funding mix lend some comfort. Further, presence of a 25-year PPA with SECI mitigates offtake risk. Stabilisation of generation with healthy PLFs will be a key monitorable.
Susceptibility to risks inherent in operating wind energy assets Wind power generation remains highly vulnerable to seasonality and variance in wind intensity. Given that cash flow is highly sensitive to PLFs in both solar and wind assets, these risks could severely impair debt servicing and free cash flow. CRISIL Ratings will continue to monitor PLF levels as a key rating sensitivity factor.
Liquidity: Strong The company had cash and equivalent of Rs 24.7 crore as on March 31, 2023, which includes DSRA of Rs 17.3 crore that covers three months of debt obligation of the MSEDCL asset. Further, project cash flows (adjusting for interest on subordinate promoter loans) should cover the external debt obligation of ~Rs 100 crore and ~Rs 115 crore for fiscals 2024 and 2025, respectively.
Further, the parent, TPL had a consolidated cash balance of around Rs 900 crore and unutilised fund-based limit of around Rs 1,150 crore as on March 31, 2023. This should help cover any cash flow mismatch, and act as a buffer for its subsidiaries, including TSL. |
Outlook: Stable TSL will continue to benefit from its long-term PPAs and adequate PLFs, along with managerial, technical, and financial support from TPL. |
Rating Sensitivity factors Upward factors * Improvement in the credit profile of the parent, TPL resulting in a 1 notch upgrade in its credit rating * Sustenance of healthy generation, significantly above P-90 level, along with receipt of payment within 30 days.
Downward factors * Weakening of the credit profile of the parent, resulting in 1 or more notches downgrade in its rating * Change in support philosophy of the parent towards TSL * Sustained weak operational performance at below P-90 levels or significant delays in payment from counterparties |
About the Company TSL, incorporated in September 2008, is a 100% subsidiary of TPL. The company has two operational wind power assets. The first, a 126 MW WPP located at Osmanabad, Maharashtra with MSEDCL as counterparty, was operationalised in December 2019. The second with an installed capacity of 116.1 MW WPP located at Devbhoomi Dwarka, Gujarat with SECI as counterparty, was operationalized on July 15, 2023. |
Key Financial Indicators – TSL – CRISIL Ratings adjusted numbers
NM: not meaningful; *adjusted for loans from promoter and associate entities of Rs 452 crore; ^includes interest on promoter loans – Rs 36 crore for fiscal 2023 and Rs 65 crore for fiscal 2022 |
List of covenants for NCDs • DSCR of 1.1x to be maintained. • DSRA of 3 months of principal and interest |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Right to reset the interest rate on expiry of every five years from the date of first disbursement ^It is being categorised as a complex instrument as there is a rating covenant attached to these NCDs wherein if rating downgrades to BBB category, debenture holders have the right to call upon the loan and/or increase pricing |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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