Fitch Ratings has assigned a 'BB-' rating to the proposed senior unsecured US dollar notes to be issued by
The proposed notes' proceeds would be on-lent to ReNew by way of a US-dollar external commercial borrowing (ECB) bond, with a back-to-back structure and cross-default provisions. The rating on the proposed notes reflects that they will be equivalent to ReNew's senior unsecured obligations and therefore, they are rated at the same level as ReNew's Long-Term Foreign-Currency Issuer Default Rating (IDR).
The
Key Rating Drivers
Diversified Portfolio: ReNew's large size and diversified renewable-asset portfolio provide economies of scale and operating leverage, mitigating project concentration risk. The power projects, including those under construction, are diversified by source - wind (50% of capacity), solar (49%) and hydro (1%) - and by geography, which mitigate risks from adverse climatic conditions at any single site. We expect ReNew's wind generation to return to average historical levels in the financial year ending
Price Certainty, Volume Risk: We believe the long-term power purchase agreements (PPAs) for the group's operating assets offer price certainty and long-term cash flow visibility. More than 90% of group capacity is under PPAs with tenors of 20-25 years and the weighted-average operating life of the group's assets is around four years. However, production volume can still vary under the long-term PPAs because it is based on resource availability, which is affected by seasonal and climatic patterns.
Receivables Build-Up to Reverse: We expect ReNew's receivable days to improve to 167 in FY22, assisted by ReNew's increasing exposure to sovereign-owned entities, a rise in receipt of payments from certain utilities since
ReNew's key counterparties - state-owned power-distribution utilities - which account for about 47% of total capacity, including projects under development, have weak credit profiles. The remaining capacity is directed at sovereign-backed entities (47%) and direct sales (6%), which have more timely payment records.
Public Listing Improves Financial Access: We expect ReNew's financial access to improve after its offshore parent,
Deleveraging Underway: Fitch forecasts ReNew's net leverage - defined by net debt/ EBITDA - will improve to around 5.5x by FY23, and further improve to around 4.8x - a key upgrade sensitivity level - over the next 12-18 months from average levels of 6.9x over FY19 to FY21. This reflects our expectations of ReNew's profitability, improvement in receivables and investment plans.
Restricted Groups' Contribution: We deconsolidate ReNew RG II's (US dollar notes: BB/Stable) EBITDA and debt to calculate ReNew's credit metrics. However, its EBITDA includes our forecast of net cash received from ReNew RG II, which is a restricted group of operating subsidiaries owned by ReNew. We do not exclude the EBITDA and debt of ReNew's other restricted groups, as ReNew provides full-tenor guarantees to their debt and their standalone profiles are weaker or on a par with that of ReNew.
Debt-Service Coverage Improves: Fitch monitors the cash flow from operations (CFO)-based debt service coverage ratio (CFO+ interest expense/scheduled project debt amortisations + interest expense) at the holding company level to analyse ReNew's liquidity and structural subordination risk. ReNew has an unrestricted asset portfolio including 485MW of operating wind and solar power assets. We expect the ratio to rise to around 1.5x in FY22 (FY21: 1.1x) with an increase in cash from larger operational capacity and lower debt amortisation after refinancing of part of project-level borrowings with non-amortising US dollar notes.
Currency Risk: The proposed notes and the
Derivation Summary
Fitch sees
ReNew's resource risk is lower, with higher exposure of 49% to solar-based projects (Greenko: 28% solar and 9.5% hydro). Its counterparty risk is also lower, with 47% of capacity contracted with sovereign-owned entities and the balance with state-owned distribution companies and direct sales. Greenko's better credit assessment than ReNew is driven by its stronger financial access and a proven track record of deleveraging, which is driven by support from its key shareholder GIC, which enables the company to rely on fresh equity for investments and acquisitions, while using cash generated from operations to deleverage.
CNE has an attributable wind capacity of 2,277MW across multiple projects in
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Plant-load factors to revert to average historical performance or resource assessment studies, after the dip in FY21 on the weak performance of wind assets;
Plant-wise tariff in accordance with respective PPAs;
Average receivable days to decrease to around 167 in FY22 (FY21: 254);
EBITDA margins of 80%-93% for all assets, in line with historical performance or management guidance;
Capex to average around INR87 billion a year from FY23 to FY24 (FY21: INR24 billion);
No dividend payout in the medium term.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Net debt/EBITDA below 4.8x on a sustained basis, provided that there is no significant increase in ReNew's overall business risk profile.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Operating EBITDA/net interest expense below 1.5x for a sustained period;
CFO-based debt service coverage ratio at the holding company and unrestricted projects at below 1x for a sustained period;
Significant and prolonged deterioration of the receivable position;
Failure to adequately mitigate FX risk.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Liquidity Supported by Market Access: ReNew had cash and cash equivalents of INR63.2 billion as of end-1HFY22, against debt maturities over the following 12 months of around INR67.1 billion, which include short-term borrowings of INR28.6 billion. We expect the company to generate negative free cash flow in the near to medium term because of ongoing capacity additions. However, ReNew has a policy and record of raising equity in advance for its projects and it has adequate access to the domestic bank-loan market.
The
Issuer Profile
The issuer,
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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