November 30, 2020 Industries Power Limited: Ratings continue to remain under issuer non-co- operating category Summary of rating action

Previous Rated Current Rated Instrument Amount Amount Rating Action (Rs. crore) (Rs. crore) 2654.24 2654.24 [ICRA]D ISSUER NOT COOPERATING, rating Long-term, fund-based term continues to remain under issuer not cooperating loans category 500.00 500.00 [ICRA]D ISSUER NOT COOPERATING, rating Short-term, fund-based working continues to remain under issuer not cooperating capital facilities category 110.00 110.00 [ICRA]D ISSUER NOT COOPERATING, rating Short-term, non-fund based continues to remain under issuer not cooperating letter of credit/bank guarantee category Total 3264.24 3264.24 *Instrument details are provided in Annexure-1 Rationale

The rating is based on limited cooperation from the entity since the time it was last rated in August 2019. As a part of its process and in accordance with its rating agreement with Vidarbha Industries Power Limited (VIPL), ICRA has been sending repeated reminders to the entity for payment of surveillance fee that became due. Despite multiple requests by ICRA, the entity’s management has remained non-cooperative. In the absence of requisite cooperation and in line with SEBI’s Circular No. SEBI/HO/MIRSD4/CIR/2016/119, dated November 01, 2016, the company’s rating continues to remain in the Issuer Not Cooperating category on fee.

The rating factors in the continuing delays in debt servicing by VIPL to the lenders. On July 6,2019, an Inter Creditor Agreement (ICA) was signed between VIPL and its lenders, basis which a standstill was achieved for 180 days for submission and implementation of the resolution plan. While the ICA expired on January 06,2020, the debt resolution plan is yet to be finalised for which continuous discussions are underway between VIPL and its lenders. One of the lenders of VIPL has filed an application under the provisions of the Insolvency & Bankruptcy Code (IBC), 2016 in January 2020 seeking debt resolution of VIPL. The matter is still pending for consideration by NCLT and the company is yet to be admitted to NCLT for insolvency proceedings. VIPL has been pursuing debt resolution with its lenders outside the Corporate Insolvency Resolution Process. The company’s liquidity profile continues to be poor as evident from the considerable decline in its net cash accruals, given the non-operational status of the plant since January 15,2020 caused by stretched receivables, protracted delays in issuance of regulatory orders and lack of fuel supply for one of the units. Further, the offtaker, Adani Electricity Mumbai Limited (AEML) issued PPA termination letter to VIPL in April 2019, citing below-threshold availability in certain years. While the company had challenged the validity and legality of the termination letter, it has received unfavourable rulings from MERC and Appellate Tribunal of Electricity (APTEL) and currently, the matter is pending at the Supreme Court. Meanwhile, after the PPA termination notice by the procurer, the lenders have exercised their right to substitute VIPL with any other entity for operating the thermal station for recovery of their dues, as per the provisions of the PPA.

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Key rating drivers and their description: Credit challenges

Continuing delays in debt servicing –VIPL and its lenders signed an ICA on July 6,2019, basis which a standstill was achieved for 180 days for submission and implementation of the resolution plan. The ICA has expired on January 06,2020, but the debt resolution plan is yet to be finalised. Meanwhile, the company has continued to delay in servicing of its debt obligations to the lenders. The company is in continuous discussion with its lenders for the resolution of its debt. However, one of the lenders of VIPL has filed an application under the provisions of the IBC, 2016 in January 2020 seeking debt resolution of VIPL. The matter is currently pending for consideration by NCLT.

Non-operational status of plant from January 15,2019 - The entire capacity of the Butibori power plant (600 MW) plant has remained non-operational from January 15, 2019 due to protracted delays in issuance of regulatory orders and lack of fuel supply for one of the units. Subsequently, there has not been any income from sale of power, which has impacted the company’s accruals and has resulted in continuing delays in its debt servicing obligations.

PPA termination notice by offtaker and subsequent exercise of ‘substitution right’ by lenders – The offtaker, AEML, has issued PPA termination letter to VIPL in April 2019, citing below-threshold availability in certain years. While the company had challenged the validity and legality of the termination letter, it has received unfavourable rulings from MERC and APTEL and currently, the matter is pending at the Supreme Court. Meanwhile, post PPA termination notice by the procurer, the lenders have exercised their right to substitute VIPL with other entity for operating the thermal station for recovery of their dues, as per the provisions of the PPA.

Stretched liquidity due to disallowance of certain part of fuel cost as per actual by MERC - The company’s cash flow position has been impacted owing to significant increase in receivables due to the disallowance of certain part of the fuel cost as per the tariff order approved by the MERC. While the company appealed against the MERC’s order to the APTEL, which in turn issued an order in favour of the company in November 2016, the MERC subsequently filed an appeal against the APTEL order in the Supreme Court in January 2017. While VIPL continued to raise the invoices to its off-taker as per the terms of the PPA without factoring in the disallowance, it was receiving payments as per the MERC order, which resulted in the significant under-recovery. Subsequently, VIPL has filed an application before MERC for grant of relief and compensation under Change in Law due to non-signing of FSA for Unit 1. Consequently, upon the petitions filed by VIPL, MERC, vide its Order dated September 14, 2018 directed VIPL to file a revised Mid Term Review Petition (MTR). With reference to the said MTR petition, MERC held a public hearing on January 8, 2019 and has reserved the order. The same has not been issued till date. To expedite the MTR Order, VIPL has filed an interim application before the Honorable Supreme Court seeking direction to Hon’ble MERC for releasing the MTR order.

Absence of Fuel Supply Agreement (FSA) for 300 MW capacity – VIPL has coal linkages in the form of Letter of Assurances (LOAs) for both units, i.e., 1.23 Million Metric Ton (MMT) for one unit of 300 MW and 1.11 MMT for other unit of 300 MW from South Eastern Coalfields Limited (SECL). After entering a long-term PPA with R-Infra, the company signed FSA with WCL in March 2014 for one unit of 300 MW for 1.11 MMT. However, for the balance 300 MW, it has not been able to sign FSA till date. Its dependence on the costlier sources of e-auction, forward auction, other domestic supplies and imported coal to meet the shortfall in domestic coal supplies has impacted its cost competitiveness. VIPL was provisionally allocated certain annual quantity of coal in the second round of e-auction conducted under clause B(ii) of the SHAKTI policy. It also received a Letter of Intent (LoI) for long-term supply of coal for its Unit 1 from WCL; however, post the termination notice by AEML to VIPL, WCL cancelled the LoI for Unit 1 on the assumption that PPA has been terminated by AEML, which VIPL is contesting at the appropriate forum.

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Liquidity position: Poor

VIPL’s liquidity position is poor as reflected by its ongoing delays in debt servicing.

Rating Sensitivities:

Positive triggers – Regular debt servicing for minimum three consecutive months would be a positive rating trigger.

Negative triggers – Not applicable Analytical approach:

Analytical Approach Comments Corporate Credit Rating Methodology Rating Methodology for Thermal Power Producers Applicable Rating Methodologies Policy on Default Recognition Policy in respect of non-cooperation by the rated entity Parent/Group Support Not applicable Consolidation / Standalone The ratings are based on the standalone financial profile of VIPL

About the company:

VIPL, a subsidiary of Reliance Power Limited, belongs to the Reliance Group promoted by Mr. Anil D Ambani. It operates a domestic coal-based project with a capacity of 600 MW (2X300 MW) at the Butibori Industrial Area in , . The project was awarded to the erstwhile Reliance Energy Limited (currently R-Infra) in 2005 (which was subsequently transferred to R-Power) as a group captive power project (GCPP) by the Maharashtra Industrial Development Corporation (MIDC) on a competitive bidding basis. Initially, the scope of the project involved developing a 1X300 MW power plant; however, subsequently, to derive the economies of scale through better utilisation of certain common facilities, the company decided to change the scope of the project by doubling its size to 600 MW (2 X 300 MW). Also, VIPL decided to operate the entire project as an Independent Power Producer (IPP) and signed a PPA (approved by MERC) under a cost-plus regime for its entire contracted capacity of 600 MW for supply of power from April 01,2014 onwards. The PPA was signed with Ltd (R-Infra) a distribution licensee in Mumbai R- Infra and subsequently assigned to Adani Electric Mumbai Limited (AEML) following R-Infra’s acquisition by AEML. The commercial operation date (CoD) for the Unit I of VIPL was declared on April 03, 2013, while the CoD for Unit II was declared on March 28, 2014.

Key financial indicators FY2018 FY2019 FY2020 (Audited) (Audited) (Audited) Operating Income (Rs. crore) 1625.55 692.25 4.68 PAT (Rs. crore) 233.63 -62.42 -1504.87 OPBDIT/OI (%) 37.93% -5.08% -1779.49% PAT/OI (%) 14.37% -9.02% -32155.34%

Total Outside Liabilities/Tangible Net Worth (times) 1.89 2.39 50.79 Total Debt/OPBDIT (times) 4.69 -87.70 -37.26 Interest Coverage (times) 1.84 -0.10 -0.23 Source: Vidarbha Industries Power Limited

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Status of non-cooperation with previous CRA: Not applicable Any other information: None

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Rating history for last three years

SN Name of Current Rating (FY2021) Chronology of Rating History for the past 3 years Instrument Type Rated Amount 30-Nov-20 FY2020 FY2019 FY2018 amount Outstanding 30-Aug-19 16-Jul-19 19-Nov-18 3-Aug-18 7-May-18 - (Rs. (Rs. crore) crore) 1 Term Loans Long- 2654.24 2654.24 [ICRA]D [ICRA]D [ICRA]D [ICRA]BB+ [ICRA]BB+ [ICRA] - Term ISSUER NOT ISSUER NOT ISSUER NOT (Negative), (Negative) A- (Negative) COOPERATING COOPERATING COOPERATING ISSUER NOT COOPERATING 2 Fund based - Short- 500.00 500.00 [ICRA]D [ICRA]D [ICRA]D [ICRA]A4+, [ICRA]A4+ [ICRA]A2+ - Working Capital Term ISSUER NOT ISSUER NOT ISSUER NOT ISSUER NOT facilities COOPERATING COOPERATING COOPERATING COOPERATING 3 Bank Short- 110.00 110.00 [ICRA]D [ICRA]D [ICRA]D [ICRA]A4+, [ICRA]A4+ [ICRA]A2+ - Guarantee/Letter Term ISSUER NOT ISSUER NOT ISSUER NOT ISSUER NOT of Credit COOPERATING COOPERATING COOPERATING COOPERATING * As on September 30,2020; INC: Issuer not co-operating Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details

Date of Amount Coupon Maturity Current Rating and ISIN No Instrument Name Issuance / Rated Rate Date Outlook Sanction (Rs. crore) [ICRA]D ISSUER NOT - Term Loan 1 FY2015 - FY2030 207.42 COOPERATING [ICRA]D ISSUER NOT - Term Loan 2 FY2016 - FY2029 157.76 COOPERATING [ICRA]D ISSUER NOT - Term Loan 3 FY2015 - FY2029 951.84 COOPERATING [ICRA]D ISSUER NOT - Term Loan 4 FY2016 - FY2029 356.83 COOPERATING [ICRA]D ISSUER NOT - Term Loan 5 FY2015 - FY2029 268.15 COOPERATING [ICRA]D ISSUER NOT - Term Loan 6 FY2015 - FY2029 178.41 COOPERATING [ICRA]D ISSUER NOT - Term Loan 7 FY2016 - FY2020 193.83 COOPERATING [ICRA]D ISSUER NOT - Unallocated - - - 340.00 COOPERATING Fund based Working [ICRA]D ISSUER NOT - - - - 500.00 Capital Facilities COOPERATING Non-Fund Based [ICRA]D ISSUER NOT - (Bank Guarantee/ Letter - - - 110.00 COOPERATING of Credit) Source: Vidarbha Industries Power Limited Annexure-2: List of entities considered for consolidated analysis: Not applicable

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ANALYST CONTACTS

Sabyasachi Majumdar Girishkumar Kadam +91 124 4545 304 +91 22 6114 3441 [email protected] [email protected]

Tushar Bharambe +91 22 6169 3347 [email protected]

RELATIONSHIP CONTACT

L Shivakumar +91 22 6114 3406 [email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani Tel: +91 124 4545 860 [email protected]

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm) [email protected]

About ICRA Limited:

ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency.

Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.

For more information, visit www.icra.in

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