RATING RATIONALE
28Jun2022
Adani Power (Jharkhand) Ltd
Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 500.00 Crs. of Adani Power (Jharkhand) Ltd
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||
|---|---|---|---|---|---|
| Previous | Present | Previous (17 Apr 2021) |
Present | ||
| Non Fund Based | 500.00 | 500.00 | Long Term |
BWR BBB (CE)/Stable
Reaffirmation |
BWR BBB -
/Stable Reaffirmation |
| Grand Total | 500.00 | 500.00 | (Rupees Five Hundred Crores Only) | ||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure
Note: Non-fund-based facility refers to the Performance Bank Guarantee of Rs. 500.00 Crs (USD 72 mn). The previous rating derived credit enhancement (suffix CE has been added with the rating) from the availability of the pledge of shares of Adani Transmission Ltd (ATL), and Adani Ports and Special Economic Zone Ltd (APSEZ), providing a minimum coverage of 1.25x. The company’s unsupported rating was assessed at BWR BBB-/Stable. The RBI has issued a letter dated 22 April 2022 directing CRAs that CE ratings shall not be assigned on the basis of credit enhancement derived through the pledging of shares. Hence, the ratings have been reaffirmed on a standalone basis at BWR BBB-/Stable. The analytical approach has been revised from a Credit Enhanced (CE) approach to a standalone approach.
RATING ACTION / OUTLOOK
Brickwork Ratings (BWR) has reaffirmed the ratings assigned to the bank loan facilities of Adani Power (Jharkhand) Ltd (APJL or the company).
The rating continues to draw strength from the company’s strong parentage, with Adani Power Ltd being the holding company, along with APJL being a part of the larger Adani Group, the group’s established track record in the thermal power generation segment, long-term power purchase agreement (PPA) being in place for the entire net generation capacity with a two- part tariff structure allowing for the full fuel cost pass through, the obligations of Bangladesh Power Development Board (BPDB) and Power Grid Company of Bangladesh (PGCB) under the PPA and implementation agreement (IA) being guaranteed by the Government of Bangladesh and the availability of adequate fuel supply and logistics arrangements with other Adani Group entities.
The rating, however, is constrained on account of the delay in project execution with the revised commissioning schedule shifting by ~9 months. The same needs to be monitored. The rating is also exposed to the risk of any adverse regulatory and political changes.
The outlook has been maintained as Stable as the company is expected to meet the revised commissioning schedule.
KEY RATING DRIVERSCredit Strengths:
-
Strong Promoters and their Established Track Record Support: :
The company is a wholly owned subsidiary of Adani Power Ltd (APL), Adani Group’s flagship company in the thermal power generation segment. APL is a listed entity and has high financial flexibility in terms of raising funds to support its SPVs. APL has a consolidated asset base of more than 14 GW and has thermal power plants in various states, catering to different discoms. The promoters also infused equity share capital of Rs. 2437 Crs and Optionally Convertible Debentures (OCD) of Rs. 1243 Crs in the project as on 31 March 2022, equivalent to ~ 78% of their total commitment in the project.
-
Healthy Revenue Visibility backed by a Long Term PPA: :
APJL has entered into a long term PPA with Bangladesh Power Development Board for a period of 25 years for a capacity of 1496 MW (entire net generation capacity of the company). The agreement has been entered with a two part tariff structure involving the recovery of both variable and fixed costs. The coal cost recovery has been linked to international coal indices so that any volatility in the international coal prices can be passed on to the offtaker. The entire transportation and logistics related costs are also a pass through under the variable costs recovery mechanism. The tariff also consists of a fixed component to allow for the recovery of the company's fixed costs including return on equity. Both the parts of the tariff are to be defined in USD terms.
-
Fuel Supply and Logistics Arrangements in Place: :
APJL has signed a 25-year arrangement with Adani Global Pte, Singapore for the procurement of imported coal from Australia and Indonesia at a price derived by the average of Indonesian and Australian coal indices. The pricing is in line with the coal cost recovery mechanism defined under the PPA. The company has also entered a logistics arrangement with Dhamra Port and the entire responsibility of transporting the coal from the port to the project site including unloading, storage, loading onto railway wagons and other port related documentation will be taken care of by Dhamra Port. All the costs involved with the transportation process are a pass through in the PPA.
-
Low Counterparty Risk: :
As per the terms of the IA, the responsibility to lay the transmission line in the Bangladesh region lies with BPDB and PGCB. All the obligations of BPDB and PGCB under the PPA and IA including payments towards variable and fixed components of the tariff are backed by the sovereign guarantee of Bangladesh bringing down the counterparty risk substantially.
-
Risks related to Project Execution and Covid-19 Impact on Project Implementation: :
The project is yet to achieve commercial operations and is thus exposed to execution related risks. The project is delayed due to the disruptions caused by the Covid-19 pandemic. The revised commissioning schedule is 31 August 2022 for Unit I and 31 December 2022 for Unit II, delayed by ~9 months from original schedule. As of 30 April 2022, the project completion status was 85%. Lenders approval for the revised commissioning schedule is underway. However, the COD extension letter has already been received from Bangladesh Power Development Board.
The company's previous rating was BWR BBB (CE)/Stable. The rating derived credit enhancement (suffix CE has been added with the rating) from the availability of pledge of shares of Adani Transmission Ltd (ATL) and Adani Ports and Special Economic Zone Ltd (APSEZ) providing a minimum coverage of 1.25x. The company's unsupported rating was assessed as BWR BBB-/Stable. The RBI has issued a letter dated 22 April 2022 directing CRAs that CE ratings shall not be assigned on the basis of credit enhancement derived through the pledging of shares. Hence, the ratings have been reaffirmed on standalone basis at BWR BBB-/Stable. The analytical approach has been revised from a Credit Enhanced (CE) approach to a standalone approach.
The expectation of timely and need-based support from the promoters has also been factored in while arriving at the rating.
RATING SENSITIVITIES
Positive: Achievement of the COD as per the stipulated schedule and satisfactory operational performance of the plant thereon.
Negative: Delay in the completion of the project leading to the imposition of liquidated damages by the counterparty.
LIQUIDITY INDICATORS - Adequate
The project is under implementation and is to be developed at a total estimated cost of Rs. 14817 Crs. Of the total cost, the debt component is Rs. 10075.56 Crs and the remaining to be funded by the promoters’ contribution. The promoters have brought in ~ 78% of their total equity commitment amounting to Rs. 3680 Crs till 31 March 2022. The interest payable on the term loans is being funded through the IDC component built in the project cost. The projected average DSCR comes at 1.41x for the first ten years of operations indicating the availability of adequate funds to meet debt obligations.
ABOUT THE ENTITYAPJL, incorporated in 2015, is a 100% subsidiary of Adani Power Ltd (APL). APJL is setting-up a coal based thermal power plant of 1600 MW (2*800 MW) in Godda District of Jharkhand, India, on a Build, Own and Operate basis. APJL has signed an IA with the Government of Bangladesh and PGCB. It has also signed a 25- year PPA with BPDB for supply of Power, both in November 2017. The PPA is for 1496 MW net capacity (net of auxiliary consumption) with a two- part tariff structure denominated in USD terms, wherein coal cost recovery for the company is linked appropriately with global indices and covers all the costs involved in sourcing and transporting coal to the plant, and a well-defined fixed revenue stream. The construction of the transmission line within the Indian Border is within the scope of APJL, after which Bangladesh will take care.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 20-21 (Audited) |
FY 19-20 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | Not Available | Not Available |
| EBITDA | Rs.Crs. | -1.01 | -0.01 |
| PAT | Rs.Crs. | 34.62 | -24.83 |
| Tangible Net Worth | Rs.Crs. | 2424.27 | 1656.88 |
| Total Debt/TNW | Times | 1.56 | 1.25 |
RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)
| Facilities | Current Rating (2022) | 2021 | 2020 | 2019 | |||||
|---|---|---|---|---|---|---|---|---|---|
| Type | Tenure | Amount (Rs.Crs.) |
Rating | Date | Rating | Date | Rating | Date | Rating |
| Non Fund Based | LT | 500.00 |
BWR BBB-/Stable
(Reaffirmation) |
17Apr2021 |
BWR BBB (CE)Stable
(Reaffirmation) |
16Jan2020 |
BWR BBB (CE)Stable
(Reaffirmation) |
09Sep2019 |
BWR BBB (SO)
(Reaffirmation) |
| Grand Total | 500.00 | (Rupees Five Hundred Crores Only) | |||||||
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
Hyperlink/Reference to applicable Criteria| Analytical Contacts | |
|---|---|
|
Shamkant Dattatray Deshmukh Ratings Analyst shamkant.d@brickworkratings.com |
Vipula Sharma Director - Ratings Board : +91 80 4040 9940 vipula.s@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Name of the Bank/Lender | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) | |
|---|---|---|---|---|---|---|
| 1 | Axis Bank Ltd. | Performance Guarantee | 500.00 | _ | 500.00 | |
| Total | 500.00 | 0.00 | 500.00 | |||
| TOTAL (Rupees Five Hundred Crores Only) | ||||||
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