Proceeds for debt repayment
S&P Global Ratings has assigned its ‘BB-‘ long-term issue rating to ReNew Power Pte Ltd’s (RPL; BB-/Stable/–) proposed US$400 million senior secured notes for repayment of existing debts.
The issue rating is subject to our review of the final issuance documentation, said S&P on 13 Jan 2020.
The proposed issuance will not affect the issuer credit rating on RPL.
“We estimate that RPL will continue to maintain its funds from operations (FFO) to debt of about 5% and FFO cash interest coverage of about 1.5x over the next 12-24 months,” said S&P.
The India-based company intends to use the proceeds from the note issuance for repayment of existing debt. RPL is also expected to appropriately hedge its proposed notes against the US dollar within 30 days of issuance.
S&P views RPL’s receivables profile as relatively weak compared with its peers, particularly given its 14% capacity exposure to Andhra Pradesh.
“We believe the lengthening payment delays from distribution companies in Andhra Pradesh to power generators across the industry are unlikely to improve significantly in the next 12 months,” said the rating agency.
With Rs.5 billion worth of overdue receivables expected to be collected from Andhra Pradesh, S&P expects working capital investment of Rs.10 billion-Rs.15 billion per year in fiscal 2020 (year ending March 31, 2020) and fiscal 2021.
This compares with S&P’s previous estimate of Rs.15 billion-Rs.20 billion.
Furthermore, RPL’s fairly short operating track record and high leverage due to ongoing debt-funded capital expenditure constrain the issue rating.
These risks are moderated by RPL’s steadying operating performance on a large and increasingly diversified fully stabilized portfolio (assets with more than one year of operational performance), improving counterparty exposure to better credit-quality off-takers (such as Solar Energy Corp of India), and long-term fixed-tariff power purchase agreements.
The stable outlook for the next 12-18 months reflects S&P’s expectation that RPL’s asset efficiencies will continue to perform in line with P90 estimates (generation levels that we expect the company’s projects will be able to achieve at least 90% of the time).
“We also anticipate that the company will maintain minimal delays in project execution for future projects and a manageable receivables position (or sufficient equity funding to offset delays).
“The outlook also reflects our expectation that any change to the company’s sponsors will not lead to an increase in leverage,” said S&P. fiinews.com