Ind-Ra continues to fully consolidate AGEL and its subsidiaries to arrive at the ratings and has analysed the cash flow upstreaming available to AGEL from its subsidiaries as per the bond documentation. As per various bond documents entered into by SPVs/subsidiaries, funds can be upstreamed after meeting the respective restricted payment conditions.
The upgrade factors in the continued strong operational asset performance, ii) strong execution scale-up, with annual capacity additions likely to be 4GW-5GW annually over the medium term from the earlier 2.5-3.5GW; and iii) healthy counterparty diversification and reduction in receivables, leading to an increase in the (cash flow from operations – interest)/EBITDA conversion compared to historical levels. The upgrade also reflects AGEL’s change in policy with respect to the leveraging of the holding company, as the company has now earmarked funds towards the repayment of USD750 million holdco bond. In addition, the upgrade factors in the creation of a platform within AGEL with Total Energies SE, which allows for part asset monetisation while retaining consolidation benefits, the equity infusion by the promoters through warrants of which 25% has already been received, and the continued ability of the company to tie up both debt and raise equity to ensure fully funded under-construction portfolio. The ratings also reflect Ind-Ra’s expectation of favorable operational to under-construction book ratio, given the operational capacity of nearly 10.9 GW, and an increase in annual capacity addition targets to 5GW and the amortising structure of the debt as against bulleted structures earlier, which ensure amortisation of debt, leading to 15% tail life for the projects, thus lowering the refinance and tail risks. The above factors have jointly contributed to a moderation in the leverage to more reasonable levels of 5.5-6.5x from the historically high levels of 9.0x.
The ratings continues to factor in i) AGEL’s robust execution track record; ii) the strong operational performance of its assets with plant load factors (PLFs) between P50-P90 levels of the operational assets; iii) healthy diversification among counterparties, with majority of counterparties belonging to highest credit quality; iv) portfolio diversification achieved both geographically and in generation sources across wind and solar; and v) healthy cash upstreaming from the operating SPVs when the restricted covenants are met, thus allowing for debt servicing at the holdco.
Strengths
Weakness
* Large under-construction (UC) portfolio provides growth visibility – risks managed
* Forex exposure
Largest Renewable developer in India: AGEL increased its operational capacity to 10.9GW at FYE24 (FYE23: 8.1GW; FYE22: 5.4GW), backed by healthy execution. The operational portfolio has a healthy diversification, with counterparties rated ‘AA+’ and above (Solar Energy Corporation of India Limited/NTPC Limited (IND AAA/Stable) and Adani Electricity Mumbai Limited (IND AA+/Stable)) forming 72% of the same, with 6% as merchant exposure. Additionally, solar forms 68% of the operational portfolio, followed by wind and hybrid at 13% and 20%, respectively. The tilt towards stronger counterparties, solar portfolio, and high DC:AC ratio of 1.4x lower the variability in both generation and cash flow generation, thereby aiding the leveraging levels. The portfolio has tended to perform between P50-P75 levels against the P90.
Sound Operating Parameters of Operational Assets: Supported by healthy operational performance (solar/wind capacity utilisation factor – FY24: 24.5%/29.4% , FY23:24.7%/25.2%; FY22: 23.8%/30.8%) and continuous capacity addition (2.8GW, 2.7GW, 2GW), AGEL’s consolidated EBITDA increased to a healthy INR73 billion in FY24 (FY23: INR55 billion, FY22: INR35.1 billion), while the run-rate EBITDA(excluding other income) stood at INR92 billion (INR67 billion, INR55 billion). Ind-Ra opines the company would continue to generate a healthy run rate EBITDA/MW and given the minimal tax outgo and absence of any unfavourable working capital changes, a high proportion of the same should translate to cash flow from operations per MW.
Healthy Free Cash Flow to Equity; Promoter Infusion Covers Equity Commitments: Given the strong cash flow from operations, 70%-75% of the same has been utilised towards meeting interest and principal obligations on senior debt; the balance has been available towards meeting the equity requirements for new projects and for servicing the subordinated debt from Total Energies and the promoters. This coupled with the balance promoter warrant money infusion of INR70 billion over FY25-FY26 and equity investment from investors would ensure adequate availability of equity for the under-construction portfolio. Ind-Ra expects the annual capex run rate to be stepped up to INR240 billion-300 billion over FY25-FY27 from about INR160 billion in FY24. The same would entail an annual equity requirement of INR180 billion over FY25-FY27, of which nearly INR70 billion would be promoter funds, INR85 billon-110 billion would be internally generated and the balance could be generated from the equity program.
Construction Facility Ensures Debt Funding for Capex plan: As 80% – 85% of the capex is likely to be financed through debt, AGEL’s ability to ensure a timely debt tie-up for the special purpose vehicles (SPVs) remains a key rating monitorable. Ind-Ra believes the debt tie-up is achievable, given the capital management philosophy of AGEL. AGEL uses letters of credit or revolving credit facilities at the holding company (holdco) level to initially place procurement contracts. Within the next three-to-six months, revolving construction facilities will be secured at the SPV level, freeing up the letters of credit at the holdco level. Once the assets become operational and have stabilised, AGEL would refinance the debt to release the revolving construction facilities, which could be used for funding other upcoming projects, thereby rotating the funds, resulting in mitigating the funding tie-up risk. As of March 2024, at the holdco level, AGEL had INR89 billion of non-fund-based facilities and USD3.4 billion of revolving construction facilities for the SPVs, with the total usage of construction facility standing at USD1.8 billion. During FY24, AGEL successfully refinanced USD500 million RG1 bonds with USD409 million 18 Year USD bonds and prepayment of USD91 million.
USD750 Million Holdco Bond Repayment: During FY24, AGEL defeased USD750 million holdco bonds that were due in September 2024. The defeasance of the holdco bonds was financed through USD300 million asset monetisation received from Total Energies, USD281 million received from promoter preferential allotment, and USD169 million from the debt service reserve account and other reserve accounts. Also, the company changed the agreement with Total Energies to effect a change in the nature of the investment to compulsorily convertible debentures (CCDs) with no guaranteed returns from earlier stapled instruments with guaranteed returns. The fund raise from Total Energies was executed through 50% share sale in Adani Renewable Energy Nine Limited (1,050MW assets). Ind-Ra understands that any leverage at the holdco would be relatively small and would be utilised for meeting cash flow timing mismatches for project funding rather than as an equity bridge.
Improvement in Leverage: AGEL’s total debt stood at INR 648.6 billion at FYE24 (FYE23: INR542.2 billion; FYE22: INR528.3 billion), which includes lease liabilities of INR17.9 billion (INR13.8 billion, INR6.4 billion). Additionally, during FY24, AGEL also had INR74 billion off CCDs from Total Energies, which Ind-Ra has considered as debt; including this, the total adjusted debt stood at INR722.6 billion at FYE24 (FYE23: INR542.2 billion; FYE22: INR528.3 billion), while the net adjusted debt stood at INR598.8 billion (INR486.5 billion, INR489.6 billion), as the funds towards the payout of the USD750 million holdco bond was parked as cash.. The under-construction debt stood at INR73.5 billion (FY23: INR61.3 billion; FY22: INR108.1 billion). Considering the run rate EBITDA, AGEL’s consolidated leverage as per Ind-Ra (total adjusted debt including lease and CCDs/run rate EBITDA) moderated to 6.5x in FY24 (FY23: 8.0 x; FY22: 9.0x), driven by i) equity infusion and capital release through asset monetisation; ii) better operating performance; and iii) limited working capital lock-up. The leverage (total debt including lease and excluding CCDs/EBITDA) decreased to 5.7x in FY24 (FY23: 8.0x; FY22: 9.0x). The consolidated interest coverage (EBITDA/finance cost excluding interest on lease liability, (gain) / loss on derivative contract and exchange difference loss regarded as an adjustment to borrowing cost) decreased to 1.7x in FY24 (FY23: 1.8x; FY22: 1.6x) due to higher interest costs on account of increase in the debt size.
Large UC Portfolio Provides Growth Visibility – Risks Managed: AGEL has an UC/near completion portfolio of 11.4GW for execution over FY25-FY27, which includes around 1GW of hybrid capacity, 1GW of wind capacity and 9.4GW of solar capacity. Within the solar capacity, close to 6.7GW is to be executed under the manufacturing-linked contract with Solar Energy Corporation of India Limited. Execution of 11.4GW of the UC portfolio will expose AGEL to execution and financing risks. However, AGEL has a total land bank of 0.2 million acres, which would prevent land issues while executing projects. Furthermore, the softness in module prices has helped the company have sufficient cushion to execute projects even with low tariffs. In addition, the construction facility of USD3.4 billion allows AGEL to execute projects and then refinance the construction facility debt with project debt.
Forex Exposure: The company has been incrementally increasing the debt through foreign currency loans in the form of construction facility. However, AGEL’s currency exposure is mitigated through 100% hedging of interest and principal payments. The forex risk on USD bonds in RG-1 and RG-2 are hedged to the extent of 100% even though the debt structuring approved policy is to hedge up to 95% of the currency and 75% of the interest rate risk, and the company is likely to implement a similar strategy in other restricted pools. Forex movement at the time of switching from one type of debt to another is mitigated through retaining forex gains in the project account. Hence, the risk is only to the extent of hedging cost (FY24: INR7.0 billion; FY23: INR6.9 billion) at the rollover of hedges. The diversification in funding sources reflects the management’s capability to tie up debt in a timely and efficient manner and also reduce the finance cost.
Adequate: AGEL’s liquidity is reinforced by its access to capital markets, which enables it to undertake capex under the revolving construction facility; once the project is commissioned and operational, the company refinances the construction facility with longer tenor project debt. AGEL’s cash flow of operations increased to INR77.1 billion during FY24 (FY23: INR72.7 billion; FY22: INR29.4 billion) due to improvement in EBITDA. The company incurred capex of INR157.7 billion in FY24 (FY23: INR33.7 billion; FY22: INR146.3 billion). As on 31 March 2024, the company had a total construction facility of USD3.4 billion. Of the total debt of INR722.6 billion as on 31 March 2024, INR45.1 billion was from related parties with no fixed maturities, INR49.5 billion was in the form of working capital limits, INR 18.0 in form of lease liabilities and INR74.0 billion was in the form of CCDs from investors in the AGEL group. Hence, the total project specific debt stood at INR536.0 billion as on 31 March 2024. For the total project-specific debt, AGEL has total repayment obligations of INR32.48 billion and INR27.33 billion for FY25 and FY26, respectively. The repayment of USD750 million holdco bonds is also due during FY25. However, the holdco bond repayment stands defeased.
Rating Sensitivities
Positive: A sustained reduction in the net leverage, successful and timely completion of the under-construction assets, and a stabilisation of assets with sound operating parameters enabling cash flow upstreaming at the holdco could lead to a positive rating action.
Negative: Any of the following developments, on a sustained basis, could be negative for the ratings:
iii) lower-than-expected operating performance, leading to lower-than-expected EBITDA generation and lower cash flow upstreaming
iv) an increase in the net leverage as per Ind-Ra’s calculation due to higher debt-funded capex
Founded in 2015, AGEL is a part of the Adani Group. The company has a renewable energy portfolio of around 22.3GW across the country, with 10.9 GW being operational and remaining being under construction. AGEL is a listed company, with promoters holding a 56.37% stake. Additionally, Total Energies holds 19.7%% equity stake in AGEL.
Not applicable
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Contact
Primary AnalystParas PalSenior AnalystIndia Ratings and Research Pvt LtdDLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana – 122002For queries, please contact: infogrp@indiaratings.co.in
Secondary Analyst Sidharth AggarwalAnalyst
Media RelationAmeya BodkheMarketing Manager+91 22 40356121
About India Ratings and Research: India Ratings and Research (Ind-Ra) is committed to providing India’s credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India’s fixed income market.
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