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Rating Action:

Moody's assigns first-time (P)Ba3 rating to Neerg Energy Ltd's senior secured notes

24 Jan 2017

Singapore, January 24, 2017 -- Moody's Investors Service has assigned a provisional (P)Ba3 rating to the proposed 5-year USD senior secured notes of Neerg Energy Ltd.

The outlook on the rating is stable.

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

Neerg will use the proceeds from the USD notes to subscribe to Masala bonds issued by seven restricted companies (the restricted group), which are wholly-owned/majority-owned by Renew Power Ventures Private Limited (RPVPL, unrated). Holders of the USD notes will benefit from a first ranking charge over the Masala bonds, thereby establishing a linkage between the credit profile of Neerg and that of the restricted group.

The proceeds from the Masala bonds will be used to refinance the existing debt of the restricted subsidiaries.

Neerg is held by a trust and its ownership is not linked to RPVPL or its subsidiaries. Neerg will not undertake any other business activity other than investing in the proposed Masala bonds.

The restricted companies are: Renew Solar Energy (Karnataka) Pvt Ltd, Renew Solar Energy (TN) Pvt Ltd, Renew Wind Energy (Karnataka) Pvt Ltd, Renew Wind Energy (MP Two) Pvt Ltd, Renew Wind Energy (Rajkot) Pvt Ltd, Renew Wind Energy (Shivpur) Pvt Ltd and Renew Wind Energy (Welturi) Pvt Ltd. All seven companies are unrated.

RATINGS RATIONALE

"The (P)Ba3 rating of the notes is closely linked to the credit quality of the restricted group, which benefits from its portfolio diversification across five states with different wind/solar resources and distinct regimes in India," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

This diversification helps mitigate the risk of its exposure to seasonal variations in the availability of wind and solar resources, as well as the offtakers' weak financial profiles.

"The (P)Ba3 rating is also supported by the experienced management team and strong financial sponsors, which have infused equity at the RPVPL level over the last five years," Tyagi adds.

"On the other hand, the (P)Ba3 rating factors in the short operating track record of most of the group's projects and the aggressive growth plans of RPVPL," adds Tyagi.

Moody's expects the restricted group to have high financial leverage, with FFO interest coverage at 1.5x-1.6x and funds from operations (FFO) to debt at 6.0%-6.5% over the next 12-24 months. These levels are in line with a Ba3 rating.

The restricted group is also exposed to limited operating risks, as its long-term equipment warranties for solar panels and wind turbines, limited term performance guarantees, and operating and maintenance contracts as per standard industry practice mitigate the technology and operational risks of its projects

Further, as the restricted group companies are wholly or majority owned by RPVPL, Moody's believes that there is a close relationship between the credit profile of the issuer and that of RPVPL. As such, any marked deterioration in RPVPL's credit profile could impact the rating of the senior secured bonds.

However, the terms of the proposed Masala bonds, which serve as a security to the USD notes, include restrictions on the restricted group's leverage and on the upstreaming of dividends and other types of payments to its parent and affiliates. These terms help mitigate concerns over potential material cash leakages to the parent.

In addition, Moody's expects the parent will show a strong commitment to avoiding a material deterioration in the restricted group's credit profile, given its importance to the parent.

The rating also takes into account the hedging arrangement provided by Neerg, which includes a full hedge for the coupon with no currency risk and a call spread for the principal amount which protects Neerg against USD-INR exchange rate movements up to a defined level, as well as a redemption premium for the Masala bonds to provide additional buffer.

The USD notes will be secured by a first priority charge over the Masala bonds, cash account of Neerg and by the pledging of Neerg's shares. The Masala bonds in turn will be secured by the moveable and immovable assets of the restricted group , as well as by majority share pledges and by rights under project documents. The Masala bonds will be guaranteed by each of the Masala bond issuers and through a guarantee provided by RPVPL. The parent guarantee will be released upon combined leverage ratio falling below 5.5x.

The stable 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 the restricted group. These factors should support the ability of the restricted group to maintain financial metrics within the tolerance levels of its (P) Ba3 ratings category.

Upward pressure on the notes' rating is unlikely over the next 12-18 months, based on the company's business profile and financial strategy. The ratings could be upgraded over time if the restricted group 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 FFO/debt declines below 4%-5% on a sustained basis for the restricted group. Additionally, the rating could face downward pressure if there is a material change in the restricted group's growth plans and financial strategy, leading to reduced financial flexibility within its (P)Ba3 rating.

The principal methodology used in this rating was Power Generation Projects published in December 2012. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Neerg Energy Ltd is a held by a trust, and was incorporated in Mauritius in January 2017. Neerg is the issuer for the proposed USD notes. Neerg will use the proceeds from the USD notes to subscribe to Masala bonds issued by seven restricted companies (the restricted group), which are wholly-owned/majority-owned by Renew Power Ventures Private Limited (RPVPL, unrated). The 7 subsidiaries have a capacity of 504 MW of wind and solar power plants in India, of which 471.5 MW is operational and 31.5 MW is to be commissioned by March 2017.

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.

Abhishek Tyagi
Vice President - Senior Analyst
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
SUBSCRIBERS: (852) 3551-3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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