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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 118.56 | ACUITE A+ | Stable | Reaffirmed | - |
| Total Outstanding Quantum (Rs. Cr) | 118.56 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuite has reaffirmed its long-term rating to 'ACUITE A+ ' (read as ACUITE A plus) on the Rs. 118.56 Cr. on the bank facilities of 'Vector Green Sunshine Private Limited (VGSPL)'. The outlook is 'Stable'.
Rationale for the rating The rating is primarily driven by the change in analytical approach to ensure alignment with the latest RBI guidelines on credit enhancement for bank loan ratings. The guidance note has outlined potential risks inherent in an obligor/co-obligor structure which includes among others, legal risks. The absence of statutory recognition renders such structures weaker than earlier expected and may increase the uncertainty regarding the enforceability of such structures in the event of financial stress. Given the reduced comfort, Acuite has removed the additional support that had been earlier factored in the obligor/ coobligor structure. Acuite, nevertheless, has continued to consider the consolidated business and financial risk profile to arrive at the rating. The analytical approach allows for factoring the management stated posture of supporting the individual entities in the group in the times of distress. While the assets are renewable power assets which are governed by individual Power Purchase Agreements (PPA) with different counter parties and there is no intermingling of cashflows at any stage except at the time when the trustee evaluates the servicing ability in individual debt servicing accounts, Acuite will no longer takes into account the benefit of surplus cashflow from one entity to another. However, the rating continues to derive support from stable operating performance of the assets and limited off-take risk. Further, rating also considers the support available from the parent company. The above-mentioned rating strengths are partly offset by elongation of its receivable cycle on account of delays in payments from state distribution utilities and risk of deterioration in performance or cash flow position of one or more SPVs simultaneously leading to reduction in surplus cash flow availability |
| About Company |
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Vector Green Sunshine Private Limited (VGSPL) is a Special Purpose Vehicle (SPV) of Vector Green Energy Private Limited (VGEPL) which operates a 20 MW solar power plant in Mansa, Punjab. It was incorporated in 2015 and operations for the plant began in 2016. It has signed a PPA with Punjab State Power Corporation Limited with a residual life of 21 years.
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| About the Group |
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VGEPL is a renewable energy platform wholly owned by India Infrastructure Fund – II (IIF-II) which is a SEBI registered category 1 AIF. IIF II is managed by Global Infrastructure Partners India (GIP India). GIP is a leading global, independent infrastructure investor. GIP-managed funds invest in infrastructure assets in energy, transport and water/waste sectors. GIP Press Release POLEPALLY SOLAR PARKS PRIVATE LIMITED October 13, 2022 Rating Reaffirmed manages over USD72 billion globally for its investors. VGEPL has an aggregate portfolio of 709 MW solar (DC Capacity), 24 MW wind and 216 solar rooftop sites across India aggregating to 9 MW (DC). VGEPL has structured six of its SPVs into an obligor/ coobligor structure including PSPPL and five others namely – Mahabubnagar Solar Parks Private Limited (MSPPL), Winsol Solar Fields (Polepally) Private Limited (WSFPL), Hindupur Solar Park Private Limited (HSPPL), Vector Green Surya Urja Private Limited (VGSUPL) and Vector Green Sunshine Private Limited (VGSPL). MSPPL operates a 10 MW plant in Mahabubnagar, WSFPL operates three plants at Tandur (50 MW), Karoor (15 MW) and Kondagal (10 MW), HSPPL operates two plants at Anantapur (40 MW) and Punganuru (40 MW) and VGSUPL and VGSPL operate plants of 20 MW each in Punjab. Currently all the six SPVs considered under VGEG (as defined below) are currently under an obligor/coobligor structure with the lender. The total debt for the six SPVs stood at Rs. 1086 Cr as on March 31, 2022 (Prov.).
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Analytical Approach
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuite has consolidated financial and business risk profiles of six SPVs of VGEPL to arrive at the rating. Acuite has removed the CE suffix and the additional support from the obligor/ coobligor structure to bring the approach in line with the RBI guideline on credit enhancement which had raised concerns regarding the enforceability and feasibility of such structures. Full consolidation approach has been considered as all the SPVs are in the same line of business; they are managed at the holding company level by the same team, currently proposed to have a common lender and the TRAs will be monitored by the same Trustee. The details of the 6 SPVs included are mentioned in Annexure – I and hereon will be referred to as Vector Green Energy Group (VGEG).
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Key Rating Drivers
| Strengths |
| Stable operational performance, established operational track record and limited off take risk
VGEG has six SPVs with total generation capacity of 230 MW. WSFPL has three projects and PSPPL and MSPPL have one each in Telangana, HSPPL has two projects in Andhra Pradesh and VGSUPL and VGSPL have one projects each in Punjab. All the nine project have started commercial operations in year 2016 and have an operational track record of more than five years of stable cash flow generation. The average plant load factor (PLF) has ranged between 17-23 percent (above P90 levels) for the past five years with robust plant availability factor in excess of 97 percent. All the SPVs in VGEG have signed long term PPAs with State Power Distribution Companies for their installed capacity. PSPPL, MSPPL and WSFPL’s projects have PPAs with Southern Power Distribution Company of Telangana Limited, VGSUPL and VGSPL have PPA with Punjab State Power Corporation Limited and HSPPL’s projects has PPA with AP Power Distribution Company Limited. The weighted average residual tenure on all PPAs is over 20 years thus reducing the off-take risk and providing revenue visibility over the long term. Acuité expects VGEG’s operational performance to remain stable over the medium on account of stable generation and signed long term PPAs. Healthy financial flexibility on account of support from holding company All the SPVs in VGEG are fully owned by VGEPL which is a renewable energy platform wholly owned by India Infrastructure Fund – II (IIF-II) which is a SEBI registered category 1 AIF. IIF II is managed by Global Infrastructure Partners India (GIP India). GIP is a leading global, independent infrastructure investor. GIP-managed funds invest in infrastructure assets in energy, transport and water/waste sectors. GIP manages over USD72 billion globally for its investors. It has been observed in the past parent company has infused funds to support the SPVs although there exists no contractual obligation stating the same. Acuite observes that VGEG’s financial flexibility remains healthy on account of the presence of DSRA, additional working capital limits and the precedence of funding support from parent. The parent company had infused ~Rs. 711 Cr. in form of unsecured loans as on March 31, 2022 (Prov.) in all the six entites combined to manage cashflow mismatches and reduce the long term debt. Acuite believes that the financial flexibility of the parent and its established track record of timely support to SPVs remains a credit positive and a key monitorable. |
| Weaknesses |
| Elongation in working capital cycle
VGEG's working capital cycle has further elongated in FY2022 against FY2021 reflected in the receivable period of 551 days against 338 days previous year. This has primarily been on account of delays in payment of dues from State Distribution Companies over and above the 60-90 days credit period provided in the PPA. The Group has PPAs with three State Distribution Companies – Andhra Pradesh, Telangana and Punjab. There is considerable delay in payment from the AP State Distribution Companies. The receivable period in the HSPPL (AP SPV) stood at 884 days in FY2022 against 625 days in FY2021. This is further aggravated by the tariff dispute with AP State Distribution Company. The State Distribution Companies has been making payments at the interim tariff rate of Rs. 2.44 per unit as against the rate agreed in the PPA of Rs. 5.91 and Rs. 5.98 for the two projects in Andhra, respectively. However, as on March 15, 2022 the AP High Court has ruled in favour of the VGEG has directed AP Discom to clear all outstanding dues under PPA as per contracted PPA tariff within 6 weeks from the date of the order. However, the payments have started from August 2022. Further, AP and Telangana Discom are expected to clear the past dues in 12 equal monthly installments in line with the LPS scheme. This is expected to improve VGEG's working capital cycle over the medium. VGEG’s ability to restrict further elongation its receivable position and working capital cycle will remain a key monitorable. VGEG’s ability to restrict further elongation its receivable position and working capital cycle will remain a key monitorable. |
| ESG Factors Relevant for Rating |
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As a renewable energy producer, VGEPL plays an important environmental role as it contributes to the reduction of carbon emissions. Additionally, issues such as biodiversity impact, waste management and a green supply chain are critical for this industry from an environmental perspective. On the matter of governance, ethical business practices and the structure of the board of directors along with its functioning are material factors. Labour management, workplace health & safety standards, and community development are social issues are relevant for an energy producer. Other material issues include product safety, quality and supply chain management. VGEPL Group has a robust environmental and social management system (ESMS). The company provides disclosures on ESG policies and it has reduced its carbon footprint by 1.2 million tonnes of equivalent carbon dioxide in FY21. The company’s operations are aligned to UN sustainable development goals that emphasize on ensuring access to affordable and sustainable energy, promoting inclusive growth of the society, creating sustainable cities and communities and combating climate change and its impact. Further, under social initiatives, the company has provided employment to more than 475 local people with more than 1500 man days training provided to migrant workers for skill development.
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| Rating Sensitivities |
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| Material Covenants |
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DSCR of > 1.10, calculated on cumulative basis for 6 SPVs, if there is any deviation borrower will bring in additional funds to maintain the DSCR at the required level. If the deviation is >5 percent additional interest of 0.50 percent will be charged on the outstanding loan
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| Liquidity Position |
| Adequate |
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VGEG has been able to generate Net Cash Accruals (NCAs) of Rs. 119.66 Cr for FY2022 (Prov.) against repayment obligations of Rs. 14 Cr. Over the medium term it is expected to generate cash accruals of around Rs. 90-100 Cr agai5nst total repayment obligations of around Rs. 58 Cr per year. The Group operations are working capital intensive with Gross Current Assets (GCA) of over 839 days in FY2022 (Prov.). However, the adverse liquidity impact of this is limited as the Group has liquid investments of Rs. 144.75 Cr as on March 31, 2022 (Prov.) and has sufficient cushion in the form of working capital limits. Besides this the Group also enjoys support from its parent. Thus Acuité expect VGEG to maintain a adequate liquidity profile on account of adequate cushion between NCAs and repayment obligations, liquidity buffers and expected support of the parent constrained to some extent on account of working capital intensive operations.
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| Outlook: Stable |
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Acuite expects VGEG to maintain a stable outlook on account of healthy financial flexibility and stable operating performance. Further the outlook may be revised to positive on account faster than expected improvement in the receivable position and the working capital cycle. The outlook may be revised to revised to negative on account of further deterioration in the working capital cycle leading to adverse impact on the liquidity profile of the VGEG.
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| Other Factors affecting Rating |
| None |
| Key Financials (Consolidated) | ||||||||||||||||||||||||
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| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any Other Information |
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None
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| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.htm |
| Note on Complexity Levels of the Rated Instrument |
| https://www.acuite.in/view-rating-criteria-55.htm |
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt Support) | |||||||
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