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KN 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 Solar Energy Private Limited (KN Muddebihal), Essel Solar Power Private Limited (Gulbarga), Essel 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 , 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 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

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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, , 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 AGEL, repowering of around 15MW capacity on combined basis is ongoing in EUPL and TNUPL (58% of portfolio) which is expected to be completed by March 2021 and result in improvement in CUF levels from FY22 onwards. The capex is expected to be entirely funded by promoters in the form of equity/ compulsorily convertible debentures/ unsecured loans which would be subordinated to senior debt as per sanction terms and confirmation by management. Furthermore, better O&M practices of Adani group along with regular capex to arrest degradation is expected to sustain the generation at healthy levels over long term.

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Long-term revenue visibility with off-take arrangement in the form of PPA signed with various state discoms The SPVs have entered into long term PPAs with four state discoms, i.e., U.P. Power Corporation Limited (UPPCL), Bangalore Electricity Supply Company Limited (BESCOM), Gulbarga Electricity Supply Company Limited (GESCOM) and Hubli Electricity Supply Company Limited (HESCOM) with capacity weighted average tariff of around Rs.6.75/kWh for entire portfolio. Although the PPAs for EUPL and TNUPL are for 12 year tenure, the agreements have option of extending the same by 13 years at revised tariff based on average power procurement cost (APPC) of UPPCL at end of 11th year resulting in effective term of 25 years.

Moderately comfortable debt coverage indicators on combined basis Post-acquisition by AGEL, earlier debt of these SPVs has been refinanced with a new debt having elongated tenor, leading to relatively moderately comfortable debt coverage indicators. Furthermore, under the co-obligor structure as per sanction terms and intercompany agreement, shortfall arising in any of the SPVs shall be met by surplus in other SPVs, resulting in fungibility of cashflows for timely debt servicing.

Key Rating Weaknesses Moderate to weak financial risk profile of off-takers in portfolio with significant delay in realization of receivables from BESCOM and HESCOM The projects are present in the states of Karnataka and Uttar Pradesh and have off-take arrangements with four different state discoms. Of the total capacity, around 58% has off-taker as UPPCL and 20% is from HESCOM and GESCOM all of which have weak credit profile, while 22% is from BESCOM having moderate credit profile, and hence, the overall off- taker credit profile is weak. All PPAs have stipulated timelines of making payments within 30 days however, only payments from UPPCL are received within 30-45 days from billing date. BESCOM had track record of payments of around 30 days; however, payments for KN Indi and KN Bijapura have been delayed and are yet to be received from April 2020 onwards. As articulated by management, payments are withheld by BESCOM and continuous efforts have been undertaken by new management post take over by Adani Group and thus the companies expect to realize the payments by end of March 2021. Furthermore, payments from GESCOM are received within 90-140 days while they are received within 90-180 days in HESCOM till FY20. The payment cycle of HESCOM has stretched further in 9MFY21 due to aggravated weakening of liquidity profile of HESCOM on account of Covid-19 pandemic. Post-acquisition by AGEL, management has made efforts to realize past dues and has realized some amount while balance is expected to be resolved in medium term.

Exposure to interest rate fluctuation risk The term loans availed are floating rate loans and the lenders can reset the interest rates annually. However, as per the PPA, the tariff for off-take arrangement of the power is fixed, thereby, exposing the SPVs to risk of any change in its cost factors. The interest cost being the primary cost component on cash basis, any adverse movement in interest rate would impact the overall debt-servicing ability of the SPVs.

Exposure to climatic conditions and technological risks Majority of SPVs have used poly-crystalline technology while Gulbarga and Bagalkot have used thin film technology. Poly crystalline technology has a proven history worldwide, suffers relatively lower degradation and requires lesser land leading to reduction in the Balance of Systems (BoS) cost. However, there is still moderate track record of performance of the solar modules in Indian climatic conditions, though the track record of poly-crystalline modules so far has been satisfactory in India. Achievement of desired CUF going forward would be subject to changes in climatic conditions, amount of degradation of modules as well as other technological risks.

Liquidity: Adequate The SPVs on a combined basis are expected to generate sufficient cash accruals for meeting their debt repayment obligations. As on January 31, 2021, co-obligors on a combined basis had free cash and bank balance of Rs.15.27 crore providing some liquidity cushion. As per sanction terms, DSRA equivalent to 2 quarter of debt servicing (principal and interest) is to be created from project cash flows in near term. CARE understands that moratorium relief provided by RBI was not applicable to the co-obligors. Further, the co-obligors have sanctioned working capital limits equivalent to one quarter of debt servicing providing further liquidity cushion.

Analytical approach: Credit enhanced ratings: Combined for 8 SPVs. EUPL, TNUPL, KN Sindagi, KN Indi, KN Bijapura, KN Muddebihal, Bagalkot and Gulbarga have signed a co-obligor undertaking in favour of each other as well as 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 intercompany agreement and facility agreement to ensure debt service by the due date. Hence, a combined approach is taken.

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Unsupported Rating: Standalone

Applicable Criteria Criteria on assigning Outlook and Credit Watch to Credit Ratings CARE’s Policy on Default Recognition CARE’s Policy on Curing period Criteria for Rating Credit Enhanced Debt Rating Methodology: Notching by factoring linkages in Ratings Rating Methodology: Solar Power Projects Rating Methodology - Power Generation Projects Financial Ratios – Non-Financial Sector Liquidity Analysis of Non-Financial Sector Entities

About the company (KN Sindagi): Incorporated in April 2016, KN Sindagi Solar Energy Private Limited (KN Sindagi) was earlier promoted (100% subsidiary) by Essel Infraprojects Limited (EIL; rated CARE D; Issuer Not Cooperating). KN Sindagi is solar photo voltaic project of 5 MW capacity setup in the district of Vijaywada, Karnataka. It has entered into long-term power purchase agreement with Gulbarga Electricity Supply Company (GESCOM) for supplying power for a period of 25 years. The project achieved COD in October 4, 2017. In August 2019, Adani Green Energy Limited (AGEL) entered into share purchase agreement to acquire 10 solar SPVs (including KN Sindagi) from Essel group aggregating 205 MW. KN Sindagi was subsequently acquired by AGEL on September 9, 2020 and was later transferred to Adani Renewable Energy Holding Ten Limited (which is a subsidiary of Adani Green Energy Twenty Three Limited, a 50:50 joint venture entity between AGEL and Total Solar Singapore PTE Limited). Brief Financials– KN Sindagi (Standalone) FY19 (A) FY20 (A) Total operating income 5.13 4.77 PBILDT 2.58 2.89 PAT (3.50) (2.62) Overall gearing (times) 45.05 NM Interest coverage (times) 0.87 1.04 A: Audited; NM-Not Meaningful

Status of non-cooperation with previous CRA: Not Applicable

Any other information: Not Applicable

Rating History (Last three years): Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities is given in Annexure-3

Complexity level of various instruments rated for this company: Please refer Annexure-4

Annexure - 1: Details of Facilities Size of the Rating assigned Name of the Date of Coupon Maturity Issue along with Rating Instrument Issuance Rate Date (Rs. crore) Outlook Fund-based - LT-Term Loan - - December 31, 2038 21.66 CARE A- (CE); Stable Fund-based - LT-Working Capital Limits - - - 3.34 CARE A- (CE); Stable Un Supported Rating-Un Supported - - - 0.00 CARE BBB+ Rating (Long Term)

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Annexure - 2: Rating History of last three years Current Ratings Rating history Name of the Type Rating Date(s) & Date(s) & Date(s) & Date(s) & Sr. Amount Instrument/Bank Rating(s) Rating(s) Rating(s) Rating(s) No. Outstanding Facilities assigned in 2020- assigned in assigned in assigned in (Rs. crore) 2021 2019-2020 2018-2019 2017-2018 1)Withdrawn 1)CARE BBB- (12-Nov-20) (CWD) 1)CARE BBB-; 2)CARE BBB- (01-Feb-19) Fund-based - LT-Term Stable 1. LT - - (CWD); ISSUER - 2)CARE BBB- Loan (29-Sep-17) NOT (CWD)

COOPERATING* (07-Dec-18) (15-May-20) CARE A- Fund-based - LT-Term 2. LT 21.66 (CE); - - - - Loan Stable CARE A- Fund-based - LT- 3. LT 3.34 (CE); - - - - Working Capital Limits Stable Un Supported Rating- CARE 4. Un Supported Rating LT 0.00 - - - - BBB+ (Long Term) *on the basis of best available information

Annexure – 3: Detailed explanation of covenants of rated instrument/facilities Name of the Instrument Detailed Explanation A. Financial Covenants DSCR The borrower shall, commencing from the first full year of operations, maintain the following financial parameters: Minimum DSCR or Annual DSCR, as the case may be, is 1.05 which shall be determined on the basis of annual audited statements of the borrower on consolidated basis along with obligors. B. Non-financial covenants Obligor Undertaking The Obligors shall agree and undertake that in the event of insufficiency of funds/shortfall in debt servicing by borrower, lenders shall have the right to utilize the surplus cash in any of the other TRA accounts of the obligor(s) to set-off the shortfall in debt servicing in any particular financial year. Restricted Payments As per sanction terms, restricted payments shall mean all dividends/ interest/ NCD coupon/ or any other distributions to sponsor/promoter or any related party. For making any restricted payments following conditions should be met and can be made only with prior approval of lenders:  All the reserves including DSRA and IRR as and when applicable are maintained and all sub-accounts required under TRA agreements are fully funded to the satisfaction of lenders  Maintenance of minimum cash balance equivalent to ensuing one quarter of project operating expense  No breach of covenants or any other terms and conditions provided in transaction documents  Minimum DSCR above 1.10 for all co-obligor entities  Cash sweep is compiled as per clause  Module assessment has been completed and cash sweep has been done to restore base case DSCR

Annexure – 4: Complexity level for various rated instruments for this company Sr. No. Name of the Instrument Complexity Level 1. Fund-based - LT-Term Loan Simple 2. Fund-based - LT-Working Capital Limits Simple 3. Un Supported Rating-Un Supported Rating (Long Term) Simple

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Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

Contact us Media Contact Mradul Mishra Contact no. - +91-22-6837 4424 Email ID - [email protected]

Analyst Contact Naresh M. Golani Contact no. - 079-4026 5618 Email ID – [email protected]

Relationship Contact Deepak Prajapati Contact no. - 079 – 4026 5656 Email ID – [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.

Disclaimer CARE’s ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE’s ratings do not convey suitability or price for the investor. CARE’s ratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. CARE is not responsible for any errors and states that it has no financial liability whatsoever to the users of CARE’s rating. Our ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades.

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