India Ratings Assigns CLP Wind Farms’ NCDs Final ‘IND AA’; Outlook Stable

India Ratings and Research (Ind-Ra) has announced that it has assigned CLP Wind Farms (India) Private Limited’s (CLPWF) INR 6,000 mn non-convertible debentures (NCDs) a final rating of 'IND AA'. The Outlook is Stable. 

These NCDs are part of the company’s proposed INR17,568.16m long-term loans. The assignment of final ratings follows the receipt and review of transaction documents conforming to the information already received by Ind-Ra. There are no material differences in structure or features from the information provided when assigning the provisional ratings. The final rating is, therefore, the same as the provisional rating assigned on 10 September 2015.

The instrument has been issued in the form of rated, secured, unlisted, redeemable NCDs at the face value of INR10m each, aggregating to INR6,000m. The NCDs have been issued in three series of INR2,000m each and their proceeds will be used to finance part of CLPWF’s existing capital expenditure for the under-construction wind farms (except Yermala wind farm) and refinance debt. The NCDs have a coupon payable annually i.e. 30 April of each year till the maturity of the NCDs. The Series I, Series II and Series III will be redeemed on 30 April 2018, 30 April 2019 and 30 April 2020, respectively.

The proposed NCDs will share the same security features and escrow mechanisms as the existing bank loans. This structure will be monitored by an independent trustee and the security trustee - IDBI Trusteeship Services Limited.

KEY RATING DRIVERS

The rating reflects CLPWF’s strong cash flow from most of its operating wind projects, in line with Ind-Ra’s base case assumptions. Healthy internal accruals are used to partly fund new projects, reducing the dependence on long-term project loan for the capex and hence the overall total cost for implementing them.

The ratings reflect the company’s strong operational and strategic ties with its 100% parent CLP India Private Ltd (CLP India; ‘IND AAA’/Stable). The ratings also factor in the financial and operating strength of CLP India, a wholly owned subsidiary of CLP Holdings (Fitch Ratings Ltd. Issuer Default Rating (IDR): ‘A’/Stable). Ind-Ra expects the sponsor to support the company should a cash flow mismatch arise at the project level based on the history of support provided by CLP India to its subsidiaries.

Construction risk is reasonably mitigated as 10 projects (Samana 2, Saundatti, Hara, Theni-1, Andhra Lake, Sipla, Mahidad, Bhakrani, Tejuva and Jath) of the total 12 are already operational. Tejuva achieved full commissioning on 28 August 2015 and Chandgarh is likely to be operational by December 2015. Even though Yermala is likely to be delayed, the delay is not likely to affect the servicing of the existing debt. According to the company, construction delays in Yermala and other wind farms will not result in any cost overruns, due to CLPWF’s fixed-price engineering, procurement and construction (EPC) contracts with contractors. The delay in completion is likely to attract liquidated damages from the EPC contractors.

The ratings are also supported by the company’s diversified portfolio of wind power generation assets across different geographies (portfolio impact). Supply risk is mitigated by the fact that the wind assets have consistently been performing at or above P75 (average: 23.5%) levels, with the exception of Bhakrani and Theni projects which have been performing below P90 (average: 21.5%) levels due to stabilisation and grid availability issues, respectively. Ind-Ra takes some comfort from the availability of operational performance for three years for most of the projects.

Revenue risk is mitigated as all the wind farms have fully tied-up power purchase agreements with the respective state distribution companies. Although the weak credit profile of a few off-takers is a cause for concern, especially that of Rajasthan discoms and Tamil Nadu discom. Having said that, diversified off-takers for the company reduce the receivable risk. The management has stated that should there be a temporary mismatch in operational cash flow, support will be extended to the company to meet its debt servicing requirements on a case-to-case basis, although there is no contractual requirement by the sponsors.

The management states that currently the cash flow and security of 10 (and Chandgarh on commissioning) of the 12 wind farms are cross collateralised i.e. the company had common security features and escrow mechanisms for all its project loans (except Yermala wind farm) at the time of the issue of the NCDs. The management’s strategy is to exclude Yermla wind farm in this structure as none of its loans have been drawn down.

Structural features for the NCDs include a six-moth debt service reserve account (DSRA) which will cover the succeeding coupon payments of the NCDs to be set-up in the form of cash or bank guarantee. That said, other project loans will continue to maintain a six months DSRA (principal + interest) in the form of bank guarantees. The transfer to debt service payment account (interest on the NCDs) will start three months and principal redemption amount will be transferred 30 days before the due date to avoid the last moment liquidity crunch to service debt obligation for the NCDs.

Operating risk is mitigated by the projects having fixed price operations and maintenance contracts with original turbine manufacturers for the first 10 years from the respective commercial operations date. The contracts have standard clauses for availability guarantee, power curve guarantee and provisions for liquidated damages.

The company’s exposure to significant foreign currency risk has been reasonably moderated with long-term (10 year) hedges with strong counterparties such as DBS Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, India and Standard Chartered Bank (Fitch Ratings IDR: ‘AA-’/Negative) covering a significant portion of the debt. Interest rate risk is covered by hedges on LIBOR rates for around three years with the company’s policy of rolling the cover.

The management has stated that the short-term loans to the extent of the commercial paper outstanding will not be drawn until its maturity.

RATING SENSITIVIES

Operating and financial performance below the rating case estimates and absent sponsor support could result in a rating downgrade.

PROJECT PROFILE

CLPWF owns a wind energy generation asset portfolio of 832.3MW, out of which around 723.9MW is in operation. The company has wind assets spread across Andhra Pradesh, Gujarat, Maharashtra, Rajasthan, Madhya Pradesh and Tamil Nadu. CLPWF is wholly owned by CLP Holdings through its 100% Indian subsidiary CLP India.

CLPWF outstanding ratings (including the above):

• INR8,256.5m rupee term loan (INR4,755m outstanding on 31 March 2015): ‘IND AA’; Outlook Stable
• USD183.78m (INR9, 312.5m equivalent) external commercial borrowing (ECB; USD150.38m outstanding on 31 March 2015, equivalent INR7,620m): ‘IND AA’; Outlook Stable
•  INR4,000m commercial paper: ‘IND A1+’
• INR1,000m rupee term loan: ‘IND AA’; Outlook Stable
• USD110m (INR6,586m equivalent) ECB: ‘IND AA’; Outlook Stable
• INR6,000m NCDs: 'IND AA'; Outlook Stable
• Proposed INR11,568.16m (reduced from INR17,568.16m) long-term loans: ‘Provisional IND AA’; Outlook Stable