KSK Mahanadi Power Company Limited Instrument Amount Rating Action In Rs. Crore August, 2016 Term loans (Senior-debt) 12142 Revised to [ICRA]D from [ICRA]BB (Negative) Term loans (Sub-debt) 810 Revised to [ICRA]D from [ICRA]BB (Negative) Bank guarantee 773 Revised to [ICRA]D/[ICRA]D from [ICRA]BB(Negative)/[ICRA]A4 Fund based limits 1120 Revised to [ICRA]D from [ICRA]BB (Negative) Non-fund based limits 857 Revised to [ICRA]D from [ICRA]A4 ICRA has revised the long term rating to [ICRA]D (pronounced ICRA D)1 from [ICRA]BB (pronounced ICRA double B) and also revised the short term rating to [ICRA]D (pronounced ICRA D) from [ICRA]A4 (pronounced ICRA A four) for the term loans, fund based and non-fund based facilities of KSK Mahanadi Power Company Limited (KMPCL) aggregating to Rs. 15702 crores2. The rating revision is on account of delays in servicing the interest obligation by KMPCL on the debt availed for setting up the 3600 MW (6 X 600 MW) thermal power project (TPP) in the state of Chhattisgarh. This is owing to delays in implementation of the project caused by execution related challenges, agitation by locals and subsequently, due to delays in securing funding for cost overruns. The scheduled project commissioning date (CoD) has now been revised to December 2017 from December 2015, which was earlier revised from the appraised CoD of December 2013. ICRA notes that the large delays in execution, steep depreciation of rupee against US dollar on imported BTG3 equipment and construction of temporary transmission line, resulted in cost overrun to the extent of 67% of the original appraised cost, thus adversely impacting the cost competitiveness of the project. Approvals are in place for the revised CoD and project cost from major lenders in the consortium along with relaxation of debt-equity ratio4 for the project cost associated with the first four units of the TPP. However, the tight timelines and funding risk arising from the large quantum of pending equity infusion (Rs. 4529 crore), primarily required for commissioning the last two units, makes it challenging for the company to achieve the revised CoD of December 2017. The ratings are further constrained by the fuel supply risks arising on account of de-allocation of the Morga II and Gare Pelma III coal blocks tied up by KMPCL as per the Supreme Court order dated September 24, 2014 and as the company has not been able to tie-up alternative linkage for fuel supply. The company is currently sourcing coal from open market, including under the special forward e-auction for power sector by Coal India Limited. The ratings also factor in the off-take risks arising out of pending tie-up of power purchase agreements (PPAs) for 37%5 of the net project capacity, expected delays in commencement of supply of 700 MW6 to Uttar Pradesh discoms given the revision in project CoD and counter-party credit risks arising from weak profile of the distribution utilities in Tamil Nadu and Uttar Pradesh, which is also reflected from the high receivable position for the company at the end of March 2016. 1 For complete rating scale and definitions, please refer to ICRA’s website www.icra.in or other ICRA Rating Publications. 2 Rs 1 Crore = Rs 100 Lakh = Rs 10 Million 3 Boiler, Turbine and Generator 4 The first four units of the TPP shall be funded through debt equity ratio of 90:10, while the last two units are to be entirely funded through equity, with the overall project debt equity ratio of 72:28, which is to be achieved by the project CoD date 5Excluding the 1010 MW PPA with Gujarat Urja Vikas Nigam Limited, given that supply under this PPA was contingent upon fuel supply by Gujarat Mineral Development Corporation 6 Out of the total PPA capacity of 1000 MW with Uttar Pradesh discoms, the project has commenced supply of 300 MW since October 2015. As per the terms of the PPA, the supply of 1000 MW should commence by October 2016. The ratings however take note of the progress achieved by the project with the commencement of commercial operations of first two units of the project, with power generated being supplied to discoms in Andhra Pradesh, Tamil Nadu and Uttar Pradesh. ICRA also takes note of the low permitting risks for the project with approvals in place and significant progress achieved on the ancillary infrastructure such as water intake system, transmission lines and railway siding. Further, the ratings factor in the presence of PPAs for 63%7 of the net capacity at remunerative tariffs including PPA with Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) for 500 MW for a period of 15 years and PPA with Uttar Pradesh Power Corporation Limited (UPPCL) for 1000 MW for a period of 25 years. Company Profile KMPCL promoted by KSK Energy Ventures Limited (KSKEVL), is developing a 3600 MW (6 x 600 MW) domestic coal based power project at Nariyara village, Janjgir-Champa District of Chhattisgarh. The project has received all required approvals and the first unit of the project was commissioned in August, 2013, while the second unit has been declared commissioned in August, 2014. The project CoD has been revised to December 2017 from the appraised CoD of December 2013. The project cost has been revised to Rs. 27080 crore from the initial appraised cost of Rs. 16190 crore. The project cost including the cost of ancillary infrastructure such as water intake system and railway siding stands at Rs. 28430 crore. The ancillary infrastructure has been set up through separate SPVs, which will now be merged with KMPCL as per the conditions stipulated by the lenders, while sanctioning debt funding for cost overrun. KSK Group promoted by Mr. K.A. Sastry and Mr. S. Kishore, is involved in development and operation of power projects. KSK Power Ventur Plc, based in the Isle of Man, is the principal holding company of the group holding investments in KSKEVL and KSK Energy Company Private Limited (KECPL). KSKEVL in turn serves as the holding company for the group’s investments in operational and prospective power projects while KECPL serves as the holding company for other activities of KSK allied to power generation. The group has operational power projects with capacity aggregating to 2062 MW, including the 1200 MW by KMPCL. August 2016 For further details, please contact: Analyst Contacts: Mr. Sabyasachi Majumdar (Tel. No. +91 124 4545304) [email protected] Vikram V (Tel No. +91 40 40676518) [email protected] Relationship Contacts: Mr. Jayanta Chatterjee (Tel. No. +91-80-43326401) [email protected] © Copyright, 2016, ICRA Limited. All Rights Reserved Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA’s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website www.icra.in or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. 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All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents. 7Excluding the 1010 MW PPA with Gujarat Urja Vikas Nigam Limited, given that supply under this PPA was contingent upon fuel supply by Gujarat Mineral Development Corporation Registered Office ICRA Limited 1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi 110001 Tel: +91-11-23357940-50, Fax: +91-11-23357014 Corporate Office Mr. Vivek Mathur Mobile: +91 9871221122 Email: [email protected] Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon 122002 Ph: +91-124-4545310 (D), 4545300 / 4545800 (B) Fax; +91- 124-4050424 Mumbai Kolkata Mr. L. 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