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Rating Action:

Moody's assigns first-time (P)Ba2 to Greenko's USD950 million Senior Notes

10 Jul 2017

NOTE: On July 11, 2017, based on information from the issuer, the press release was corrected as follows: The second sentence of the ninth paragraph of the Ratings Rationale section was changed to “The NCDs will benefit from a financial support arrangement, whereby restricted subsidiaries will enter into an agreement with each of the other restricted subsidiaries with assets of at least 20MW in capacity.” Revised release follows.

Singapore, July 10, 2017 -- Moody's Investors Service has assigned a provisional (P)Ba2 rating to the proposed 7-year USD backed senior unsecured notes of Greenko Dutch B.V. (GDBV). The proposed USD950 million notes are guaranteed by GDBV's holding company, Greenko Energy Holdings (GEH).

The outlook on the rating is stable.

The provisional status of the rating will be removed upon completion of the transaction on satisfactory terms.

GDBV is a special purpose vehicle which will use the proceeds from the USD notes to subscribe to senior secured INR non-convertible debentures (NCDs) to be issued by each of the other Restricted Subsidiaries in the restricted group (RG3), which are wholly-owned/majority-owned by GEH. GDBV is also part of RG3.

GEH is a major energy company in India, with renewable energy capacity totaling 1.9 gigawatt (GW) at 31 March 2017. Holders of the USD notes benefit from a guarantee from GEH and a share pledge over the issuer, thereby establishing a linkage between the credit profiles of GDBV, RG3 and GEH.

The proceeds from the NCDs will be used to refinance the existing debt of the restricted subsidiaries, including the existing USD550 million notes due 2019, project finance debt and shareholder loans associated with the operating projects that the parent transfers to RG3.

RATINGS RATIONALE

"The (P)Ba2 rating of the notes is supported by the portfolio diversity of RG3, with around 1.1 GW of operating assets across wind, solar and hydro technologies in six states in India," says Ray Tay, a Moody's Vice President and Senior Credit Officer.

This diversification helps mitigate the risk of its exposure to seasonal variations in the availability of renewable resources.

"The rating also takes into account the strong commitment, high credit quality of and strategic oversight by the ultimate shareholders, especially GIC," adds Tay.

GIC Private Limited (unrated), a sovereign wealth fund of Singapore (Aaa stable) which owns 64% of GEH, has demonstrated its commitment to the company by infusing substantial amounts of equity at the holding company level in the past two years to help grow the company. Moody's expects that GIC will provide support to the Greenko group in case of need, in recognition of the unique importance of such an investment.

However, the rating is constrained by: (1) the high financial leverage; (2) the weak credit quality of the offtakers; and, (3) the limited track record of the assets being transferred into RG3. Other rating considerations include India's renewable energy policy environment, which continues to evolve.

Over the next 12-24 months, Moody's expects that GDBV will demonstrate high financial leverage, with FFO interest coverage at around 1.5x-2.0x, and funds from operations (FFO) to debt of around 7%-8%.

Moody's believes that there is a very close relationship between the credit profile of the issuer and that of GEH, because of the guarantee provided by GEH to USD bondholders. As such, a material deterioration in GEH's credit profile could impact the rating of the USD bonds. At the same time, GDBV's notes rating will also be driven by the credit profile of RG3.

To mitigate currency risks — arising from the absence of USD-based revenues to service the proposed USD notes — GDBV will be undertaking a hedging program to manage USD/INR exchange rate movements by implementing call-spread hedges for the interest during the three-year non-call period, and 100% of the principal up to the 7-year forward rate plus a buffer of INR10. GDBV has the ability to widen the call-spread upper limit and is incentivized to ensure sufficient hedging is in place, partly because GEH is liable for any shortfall amounts via the guarantee, which is denominated in USD.

The NCDs will be secured by the moveable and immovable assets of RG3. The NCDs will benefit from a financial support arrangement, whereby restricted subsidiaries will enter into an agreement with each of the other restricted subsidiaries with assets of at least 20MW in capacity. Although not a guarantee, this agreement obliges the larger restricted subsidiaries to support debt service.

The stable rating outlook reflects Moody's expectation of stable cash flows from long-term power purchase agreements over the next few years and the absence of construction risk for the portfolio of assets in RG3. These factors should support the ability of RG3 to maintain financial metrics within the tolerance levels of the rating.

Upward momentum in the notes' rating is unlikely over the next 12-18 months, based on GEH's business profile and financial strategy; the highly-leveraged nature of RG3 and the possibility for material asset transfers from GEH, which could limit the improvement in RG3's credit metrics. Nonetheless, the rating could be upgraded over time, if GEH's credit quality improves and if RG3 maintains FFO to debt and FFO interest coverage above 12% and 2.1x, respectively, on a sustained basis.

The rating could come under pressure if: (1) RG3's FFO/debt falls below 4%-5% on a sustained basis, potentially due to weaker operational performance; (2) the offtakers' credit quality weakens materially, which could manifest via a substantial increase in receivables; and/or, (3) GEH's credit quality deteriorates materially, either via shareholder changes and/or operational weaknesses at other assets outside RG3.

The principal methodology used in this rating was Power Generation Projects published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Greenko Dutch B.V. is the issuer for the proposed USD notes. Proceeds from the USD notes will be used to subscribe to INR non-convertible debentures issued by each of the other Restricted Subsidiaries in RG3, which are wholly-owned/majority-owned by Greenko Energy Holdings. RG3 has an operating capacity of 1,075 MW of hydroelectric, wind and solar power plants in India.

Greenko Energy Holdings is an Indian renewable company that owns and operates a diversified portfolio of hydro, wind, solar and biomass power plants. At 31 March 2017, Greenko Energy Holdings' total consolidated capacity stood at 1,940 MW, including 1,075 MW of wind, 380 MW of hydro, 403 MW of solar, and 78 MW of biomass.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ray Tay
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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