Rationale

The rating for CSE Deccan Solar Private Limited (CSEDSPL) continues to factor in the strengths arising from the company’s parentage, being a part of the Cleantech Solar Group, an experienced management, established track record in developing renewable power projects and a diversified solar and wind project portfolio of ~1,083 MWp tied up with large commercial & industrial customers. The capacity under the holding company Cleantech India OA Pte Ltd (CIOA) stands at ~374 MW with the entire capacity being operational. Recently, Keppel Corporation acquired the balance 49% stake from Shell Plc, thereby gaining full ownership of the platform. Further, the rating favourably factors in the long-term power purchase agreement (PPA) signed by CSEDSPL with Apollo Tyres Limited (ATL) at a fixed tariff under the captive mode, thereby limiting the demand and pricing risks for its 30-MW solar power project. The tariff offered under the PPA is highly competitive in relation to the grid tariff for this customer and the PPA would enable the customer to meet its sustainability goals. Further, the rating draws comfort from the strong credit profile of ATL, which is expected to lead to timely realisation of payments for the company. Going forward, the debt metrics are expected to remain adequate, supported by the PPA at a fixed tariff rate and the long tenure of the project debt. While a top-up term loan of Rs. 20.0 crore availed during the debt refinancing is likely to impact the company’s gearing levels, however, a decline in the interest rate is expected to maintain adequate debt coverage indicators commensurate with the rating level, supported by the PPAs at fixed tariff rates, a satisfactory generation performance and the long tenure of the project debt. Also, comfort is drawn from the presence of a debt service reserve account (DSRA) equivalent to one quarter of debt-servicing. However, any additional leveraging by the entity, impacting its debt coverage metrics would remain a key rating sensitivity, going forward. However, the rating is constrained by the vulnerability of the cash flows and debt coverage metrics of the solar power project to the generation performance, given the single-part tariff under the PPA. Any adverse variation in weather conditions or equipment performance or inability to ensure adequate O&M practices for the solar assets would impact the generation and consequently the cash flows. Herein, comfort is drawn from the satisfactory generation performance achieved by the company since project commissioning in September 2022. A demonstration of generation performance in line with, or above the P90 estimate on a sustained basis remains a key monitorable. The rating also takes note of the risk of cash flow mismatch owing to the lower lock-in period under the PPA in relation to the debt tenure. Moreover, the termination payments under the PPA do not cover for the entire debt outstanding. Nonetheless, comfort can be drawn from the competitive tariff offered by the company and the Group’s track record in securing PPAs with large industrial and commercial customers. ICRA also takes note of the sensitivity of the debt coverage metrics to the movement in interest rates, considering the leveraged capital structure and fixed tariffs under the PPA. Further, the company remains exposed to regulatory risks associated with forecasting & scheduling regulations, norms for captive projects and open access charges. While the open access charges are to be paid by the customers under the PPAs, any significant increase in these charges would impact the competitiveness of the tariffs.