Press Release KN Sindagi Solar Energy Private Limited March 05, 2021 Rating Amount Facilities Rating1 Rating Action (Rs. crore) Long Term Bank CARE A- (CE); Stable 25.00 Assigned Facilities [Single A Minus (Credit Enhancement); Outlook: Stable] 25.00 Total Facilities# (Rs. Twenty-Five Crore Only) #Based on credit enhancement in the form of a Co-obligor undertaking between TN Urja Private Limited (TNUPL), KN Sindagi Solar Energy Private Limited (KN Sindagi), KN Indi VIjayapura Solar Energy Private Limited (KN Indi), KN Bijapura Solar Energy Private Limited (KN Bijapura), KN Muddebihal Solar Energy Private Limited (KN Muddebihal), Essel Gulbarga Solar Power Private Limited (Gulbarga), Essel Bagalkot Solar Energy Private Limited (Bagalkot) and Essel Urja Private Limited (EUPL), collectively referred as co-obligors, in favour of each other as well as the lender, as per which in the event of insufficiency of funds in debt servicing in any entity, the lenders/lender’s agent shall utilize the amounts available in surplus account of other entities to meet such shortfall in accordance with the Inter- company agreement and facility agreement to ensure debt service by the due date. Unsupported Rating 2 CARE BBB+ [Assigned] Detailed Rationale and key rating drivers The ratings assigned to bank facilities of TN Urja Private Limited (TNUPL), KN Sindagi Solar Energy Private Limited (KN Sindagi), KN Indi VIjayapura Solar Energy Private Limited (KN Indi), KN Bijapura Solar Energy Private Limited (KN Bijapura), KN Muddebihal Solar Energy Private Limited (KN Muddebihal), Essel Gulbarga Solar Power Private Limited (Gulbarga), Essel Bagalkot Solar Energy Private Limited (Bagalkot) and Essel Urja Private Limited (EUPL) (collectively referred as co- obligors) are based on credit enhancement in the form of co-obligor undertaking in favour of each other as well as the lender, as per which in the event of insufficiency of funds in debt servicing in any entity, the lenders/lenders agent shall utilize the amounts available in the surplus accounts of other entities under the structure to meet such shortfall in accordance with the Inter-Company Agreement and facility agreement to ensure debt servicing by due date. The ratings derives strength from established and resourceful promoter group along with successful track record of setting up and operating renewable energy projects across India, geographical and off-taker diversification benefit on account of co-obligor structure between SPVs, long-term off-take arrangement through power purchase agreement (PPA) at fixed tariffs, healthy operational track record ranging from around 3 to 6 years, Trust and Retention Account (TRA) mechanism for project cash flows with predefined waterfall mechanism, adequate liquidity, adequate debt coverage indicators and presence of medium term fixed price operations and maintenance (O&M) contract with Adani Infrastructure Management Services Limited (AIMSL) reducing O&M risk. The ratings are constrained by lower than P-90 generation in FY20 (refers to period April 1 to March 31) and 9MFY21 across portfolio albeit expected to improve for around 58% of portfolio post completion of repowering in FY21. The ratings are also constrained by moderate to weak credit profile of off-takers along with significant delays in realization of receivables from Bangalore Electricity Supply Company (BESCOM) and Hubli Electricity Supply Company (HESCOM). As articulated by management, the payments from BESCOM are expected to be realized by end of March 2021. CARE expects payments from HESCOM to remain stretched in medium term on account of its weak liquidity profile. The ratings are also constrained by interest rate fluctuation risk and dependence of power generation on climatic conditions and technological risks. The unsupported standalone rating assigned to long-term bank facilities of KN Sindagi factors in operational track record of over 3 years as on January 31, 2021, satisfactory power generation in line with P-90 levels, long-term PPA with Gulbarga Electricity Supply Company (GESCOM), moderate payment track record, adequate debt coverage indicators at standalone level, adequate liquidity with sanctioned working capital facilities equivalent to one quarter of debt servicing and proposed creation of DSRA equivalent to two quarters of debt servicing. The rating is, however, constrained by counterparty credit risk as the project is exposed to relatively weak counterparty i.e. GESCOM, interest rate fluctuations risk and dependence on climatic conditions for power generation. 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 2 As stipulated vide SEBI circular no SEBI/ HO/ MIRSD/ DOS3/ CIR/ P/ 2019/ 70 dated June 13, 2019 1 CARE Ratings Limited Press Release Key Rating Sensitivities Positive Factors: Significantly better than P-90 generation for all the co-obligors on sustainable basis positively impacting the cash flows of the structure thereby resulting in improvement in debt coverage indicators of the structure Timely receipt of payments for all the co-obligors on sustainable basis positively impacting the liquidity profile of co-obligor structure Creation of proposed DSRA within envisaged timelines Negative Factors: Significantly lower than P-90 generation for all the co-obligors on sustainable basis negatively impacting the cash flows and debt coverage indicators Continued delay in realization payment of receivables from BESCOM adversely impacting the liquidity profile of the structure Detailed description of the key rating drivers Key Rating Strengths Recent change in ownership and management control to an entity having significantly better credit profile The SPVs were earlier promoted by Essel Infraprojects Limited (EIL; rated CARE D; Issuer Not Cooperating). However, in September 2020, Adani Green Energy Limited (AGEL), through its wholly owned subsidiary, Adani Renewable Energy Holding Ten Limited (ARE10L), acquired 100% stake in EIL’s ten operational projects (including these 8 SPVs) having aggregate capacity of 205 MW. Further, in October 2020, these acquired projects were transferred by AGEL to Adani Green Energy Twenty Three Limited (AGE23L), a 50:50 joint venture between AGEL and Total Solar Singapore PTE Limited [a step down subsidiary of Total SA Group (TOTAL)], which also houses 2,353 MW operating solar projects across 11 states in India, including the Restricted Group 1 & 2 projects of AGEL. As articulated by management, these entities, along with all other SPVs under AGEL platform including the ones under the Total JV platform are of high strategic importance to AGEL and is expected to receive all requisite support from AGEL under all adverse scenarios. This apart, as confirmed by the lenders, there has been a track record of regular servicing of debt obligations of these SPVs post acquisition by AGEL in September 2020. Established track record of Adani Group and TOTAL in renewable and energy sector with strong financial risk profile Adani Group has evolved as a diversified conglomerate with primary interests in Infrastructure Utility space. Adani Group has presence mainly in Transport & Logistics and Energy & Utility sectors apart from being present in Natural Resources sector. As of February 1, 2021, AGEL has total capacity of around 14.8 GW, of which 3,245 MW is operational solar and wind projects and balance 11,570 MW is under construction and awarded renewable energy portfolio spread across states like Rajasthan, Gujarat, Karnataka, Tamil Nadu and 7 other states (74% solar, 11% wind and 15% hybrid) which makes AGEL one of the world’s largest solar power generation asset owner. AGEL’s promoters have high financial flexibility as reflected in market value of un-pledged promoter holding in listed Adani Group entities. Total SA (TOTAL) is a French broad energy company that produces and markets fuels, natural gas and electricity and is active in more than 130 countries. Its portfolio encompasses solar, wind, hydro-electric and bio-methane power development projects. TOTAL entered into the renewable energy sector in 2011 through acquisition of a controlling interest in SunPower, a leading manufacturer of high-efficiency photovoltaic cells. In 2014, TOTAL, through its affiliate built the world’s largest PV power plant in the Mojave Desert, USA, with a capacity of 700 MW. Currently, TOTAL operates solar farms in South Africa, Japan, USA and Chile. Total Solar, TOTAL’s Asian arm, has built many large roof-top projects and has operational projects in Singapore, Thailand, Indonesia, Philippines and India. As on December 31, 2020, TOTAL had renewable power generation capacity of around 7GW through various projects across the globe. Operational track record ranging from around 3 years to 6 years with expected improvement in CUF from FY22 onwards The projects have operational track record of around 3 to 6 years as on December 31, 2020. EUPL, TNUPL, Gulbarga and Bagalkot, representing around 63% of portfolio by capacity are relatively mature projects with track record of operations in the range of 3.5-6.5 years while the other four projects have track record in the range of 2.75-3.25 years. The generation levels during FY20 and 9MFY21 in entire portfolio were below P-90 levels, which as articulated by management, was on account of poor O&M practices by erstwhile promoters and O&M contractors, breakdown of transformers, damage of modules and various other reasons, which have now been resolved. Post-acquisition by