Hong Kong, January 29, 2021 -- Moody's Investors Service has assigned a (P)Ba2 rating to the proposed
six-year USD senior unsecured notes to be issued by Continuum Energy
Levanter Pte. Ltd (Continuum Energy Levanter).
The outlook on the rating is stable.
Continuum Energy Levanter will use the proceeds from the USD notes with
a partial amortizing debt structure to subscribe to six-year non-convertible
debentures (NCDs) to be issued by six restricted subsidiaries in India,
which are either wholly-owned or majority-owned by Continuum
Green Energy Ltd. Singapore (CGEL) through Continuum Green Energy
(India) Pvt Ltd. At USD bond maturity, the restricted subsidiaries
will redeem the NCDs to Continuum Energy Levanter, and the proceeds
will be used to repay the USD bond principal.
The restricted subsidiaries in India will use the proceeds from the NCDs
to refinance their existing debt, pay related transaction costs,
repay outstanding working capital loans and fund cash needs for general
corporate purposes.
The holders of the USD notes will be supported by several structural features
that establish a close linkage between the credit profiles of Continuum
Energy Levanter and the restricted subsidiaries in India.
Such features encompass (1) Continuum Energy Levanter's status as the
subscriber of the restricted Indian subsidiaries' NCDs, with a matching
repayment structure between the proposed USD notes and the NCDs;
(2) internal cash-fund debt service reserve; (3) a mandatory
cash sweep and scheduled debt amortization likely reducing the USD notes
by 45%-47% until the maturity of the notes;
(4) a trustee-managed cash flow waterfall; (5) a collateral
package; and (6) covenants with certain carve outs.
Because of these features, the rating of the USD notes is closely
linked to the credit profile of Continuum Restricted Group 1 (RG1) comprising
Continuum Energy Levanter and the six restricted subsidiaries in India.
The wind and solar projects of the restricted subsidiaries in India are
all located in India (Baa3 negative), and each restricted subsidiary
will be liable as the co-issuer for a portion of the NCDs and as
a guarantor for the balance. The six wholly or majority-owned
subsidiaries in Continuum RG1 include: (1) Bothe Windfarm Development
Private Limited; (2) DJ Energy Private Limited; (3) Uttar Urja
Projects Private Limited; (4) Renewable Trinethra Private Limited;
(5) Trinethra Wind & Hydro Power Private Limited; and (6) Watsun
Infrabuild Private Limited.
The provisional status of the rating will be subject to Moody's
review of the final transaction documents.
RATINGS RATIONALE
"The (P)Ba2 rating assigned to the proposed USD notes reflects Continuum
RG1's diversification of its geographic operations and customer
base, along with its improving financial profile under the scheduled
principal repayment and a mandatory cash sweep mechanism, says Mic
Kang, a Moody's Vice President and Senior Credit Officer.
Continuum RG1's geographic diversification will help the RG1 continue
to generate power from its wind and solar power plants without material
variance, thereby allowing it to generate adequate operating cash
to service its debt obligations.
Moody's expects Continuum RG1's financial profile to improve
over the tenor of the USD notes, given that its senior debt will
decline under the scheduled debt amortization and the mandatory cash sweep.
The declining senior debt will also likely improve Continuum RG1's
financial buffer against variable commercial and industrial tariffs.
Moody's projects Continuum RG1's average adjusted FFO/senior
debt to stay at 10%-12% during the tenor of the notes.
The ratio will steadily improve to low-to-mid teens from
high-single digit percentages during the tenor of the USD notes,
mainly because of a gradually declining USD bond balance. Moody's
forecasts Continuum RG1's debt service coverage ratio (DSCR) will
remain within the range of 1.5x-1.7x.
These metrics are within Moody's expectation for a Ba2 rating.
Nevertheless, Continuum RG1's credit quality is constrained
by its high exposure to competition and price risk in Gujarat and Tamil
Nadu, which can weaken the RG1's cash flow visibility.
Power generated from the remaining 49% is sold to commercial and
industrial customers (C&I) at variable tariffs with shorter lock-in
periods of one to three years under power purchase agreements (PPA).
However, Moody's expects Continuum RG1 to remain resilient
to competition and repricing risk over the next 12-18 months,
mainly because of its customer diversity comprising around 89 C&I
customers in Gujarat and Tamil Nadu.
Continuum RG1's credit quality also factors in the RG1's exposure
to financially weak state-owned distribution companies (Discoms)
in Maharashtra and Madhya Pradesh, whose payment delays have required
working capital needs. The RG1 sells power generated from around
51% of its capacity to the Discoms at fixed tariffs under long-term
PPAs.
Morgan Stanley, the major project sponsor since 2012, plans
to partly or fully monetize its majority stake in CGEL, held by
the Morgan Stanley-managed Fund, during the tenor of the
USD notes, subject to availability of potential investors and satisfactory
terms. This move creates uncertainty around the major sponsor profile
of Continuum RG1, which is partly tempered by the experienced management
team.
Moody's assesses that the mandatory cash sweep — along with
CGEL's growing asset portfolio, which can be input into the
RG1 to support its refinancing, if needed, — mitigates
refinancing risk. Such refinancing risk can emerge particularly
if repricing risk or contract renewal risk, or both, increase
during the tenor of the notes.
The rating of the proposed USD notes also takes into account Continuum
Energy Levanter's plan to hedge its foreign exchange (FX) exposure through
call-spread hedges for all principal, coupon and mandatory
cash sweep payments based on from spot to at least at-the-money-forward
rates throughout the tenor of the notes. However, the principal,
coupon and mandatory cash sweep payments will be hedged only to these
levels during the amortization period under the current plan, although
CGEL will likely ensure that Continuum Energy Levanter will secure funds
sufficient to serve its debt obligations from the restricted subsidiaries
in India.
In terms of environmental, social, and governance (ESG) factors,
Continuum RG1 benefits from positive macroeconomic and sectoral trends
in renewable energy. The RG1's renewable energy business is aligned
with India's target to reduce its carbon footprint and meet its nationally
determined contributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook reflects Moody's expectation that Continuum RG1's
performance is unlikely to change materially over the next 12-18
months relative to Moody's base case expectation.
Moody's could upgrade the rating if Continuum RG1's FFO/senior
debt improves to 14% or above on a sustained basis. In addition,
upward rating momentum could occur if CGEL's sponsor profile materially
improves following Morgan Stanley's potential exit, thereby
positively affecting the RG1's business and financial profiles.
Moody's could downgrade the rating if Continuum RG1's FFO/senior
debt declines to 8% or below on a sustained basis. In addition,
downgrade rating pressure could build up if Continuum Energy Levanter's
FX exposure is higher than Moody's expectation such that it will
have insufficient headroom against unfavorable FX movements. The
rating could also come under pressure, if CGEL's sponsor profile
materially weakens as a result of Morgan Stanley's potential exit,
worsening the RG1's business and financial profiles.
The principal methodology used in this rating was Power Generation Projects
Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1236893.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Continuum RG1 -- comprising the issuer of the senior notes and the
Indian operating subsidiaries -- owns and operates 722.9 megawatts
(MW) of power plants -- 644.1 MW wind and 78.8 MW solar
-- across the four states of Maharashtra, Madhya Pradesh,
Tamil Nadu and Gujarat. Continuum RG1 will be owned by Continuum
Green Energy Limited, Singapore (CGEL, formerly known as Continuum
Wind Energy Limited) through Continuum Green Energy (India) Pvt Ltd,
which is an India-based holdco.
Continuum Green Energy Ltd. Singapore (CGEL), a holding company
based in Singapore, has operational wind and solar power plants
of 757 MW generating capacity, 154 MW under construction and 150
MW ready to construct on a consolidated basis in the four states.
CGEL aims at increasing its total capacity to 2,000-2,100
MW over the next couple of years. CGEL is 83% owned by Clean
Energy Investing Ltd, Singapore (Morgan Stanley Infrastructure Partners)
on a fully-diluted basis and 17% by the founders.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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The first name below is the lead rating analyst for this Credit Rating
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Mic Kang
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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Hong Kong
China (Hong Kong S.A.R.)
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Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 61 2 9270 8141
Client Service: 852 3551 3077
Ian Lewis
Associate Managing Director
Corporate Finance Group
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Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
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