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Rating Action:

Moody's assigns first-time (P)Baa3 to Adani Green Energy Restricted Group's USD senior secured notes

24 Sep 2019

NOTE: On October 1, 2019, the press release was corrected as follows: In the Ratings Rationale section, the fifth paragraph was changed to “At the same time, the rating considers RG-2's limited operational history, moderate financial leverage, significant amortization in the last year of the notes tenor and the residual exposure to INR/USD currency fluctuations” and in the sixth paragraph, the DSCR range was changed to “1.4x -1.5x over the term of the bond.” Revised release follows.

Singapore, September 24, 2019 -- Moody's Investors Service has assigned a first-time provisional rating of (P)Baa3 to the proposed 20-year USD backed senior secured notes to be issued under the newly established Adani Green Energy Restricted Group (RG-2).

RG-2 is Adani Green Energy Limited's (AGEL) new restricted group, and comprises three wholly owned subsidiaries: (1) Wardha Solar (Maharashtra) Private Limited, (2) Kodangal Solar Park Private Limited and (3) Adani Renewable Energy (RJ) Limited.

The proposed notes will be 1) issued in part by each of the three subsidiaries, and 2) stapled together to form a restricted group. The cash flow waterfall, creation of reserves, default and acceleration conditions will be on the basis of the group, and will have no trigger at the restricted subsidiary level.

All three restricted subsidiaries will cross guarantee the proposed notes, and the noteholders will be beneficiaries to a security package that includes assets, a pledge of the restricted subsidiaries' shares held by Adani Green Energy, and an assignment of key project documents. Each lender at any restricted subsidiary will have a pari passu first-ranking charge on all of AGEL's holdings in all three subsidiaries.

The rating outlook is stable.

The restricted subsidiaries will use the proceeds to repay their existing senior debt, subordinated debt, capital creditors, creation of debt service reserve account and for general corporate purposes.

The provisional status of the rating will be predicated on Moody's satisfactory review of the final transaction documentations, including the final currency hedging mechanism and due diligence reports at issuance.

RATINGS RATIONALE

"The (P)Baa3 rating of the proposed USD notes reflects the credit quality of RG-2, which is in turn supported by its predictable revenues from a diversified set of projects in India, operating under long-term power purchase agreements with fixed tariffs," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

"The rating also benefits from AGEL's strong operating management and committed shareholders, as well as from the fully amortizing fixed cost debt structure, which further enhances the group's cash flow visibility," adds Tyagi.

Moreover, the rating is supported by the terms of the proposed notes that restrict the RG from making distribution payments if EBITDA derived from sovereign-backed entities falls below 65%. The notes covenants also require the cash flow from the sovereign-backed entities to be sufficient to service all senior debt.

Moody's expects output from RG-2's portfolio at P-90 levels (output that is likely to exceed 90%) over the term of the bond, after taking into account transmission capacity additions, and as performance of newer projects stabilize over time.

At the same time, the rating considers RG-2's limited operational history, moderate financial leverage, significant amortization in the last year of the notes tenor and the residual exposure to INR/USD currency fluctuations.

Moody's projects that RG-2's debt service coverage ratio (DSCR) will average around 1.4x -1.5x over the term of the bond.

To mitigate the currency risk stemming from the absence of USD revenues, which are needed to service the proposed USD notes, RG-2 will enter into rolling 5-year currency swaps from financial close to manage the INR/USD exchange rate movements. According to the bond documents, RG-2 is contractually obligated to retain any gains realized at each swap rollover in a dedicated reserve account, to offset any corresponding increases in its INR-denominated debt servicing obligations caused by a decline in the Indian rupee.

The (P)Baa3 rating is predicated on a successful implementation of the proposed hedging strategy to substantially insulate RG-2 from currency risk.

The terms of the proposed USD notes include restrictions on RG-2's payments to the parent and other group entities, debt incurrence and a forward-looking cash sweep mechanism; which will enhance the resilience of RG-2's financial metrics in a downside scenario. However, given the headroom between the projected credit metrics under Moody's base case scenario and the covenant thresholds, these supportive provisions would alleviate — but not insulate — RG-2 from unexpected challenges.

The USD notes will be secured by a first-priority pledge of the restricted subsidiaries' shares, the moveable and immovable assets of the restricted subsidiaries and assignment of key project documents. The proposed notes will be cross guaranteed by each of the restricted subsidiaries.

The stable rating outlook reflects Moody's expectation that RG-2 will continue to exhibit DSCR consistent with the tolerance level set for its (P)Baa3 rating over the next 12-18 months, supported by its long-term power purchase agreements and high EBITDA margin operation.

Moody's does not expect to upgrade the rating, given limited opportunity available to RG-2 to meaningfully increase its revenue organically. That said, Moody's could upgrade the bond rating if AGEL RG's DSCR increases to above 1.8x on a consistent basis.

The rating could come under downward pressure if RG-2's DSCR profile deteriorates towards 1.35x on a sustained basis, which could result from any residual exposure to long-term currency depreciation.

The principal methodology used in these ratings was Power Generation Projects published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Adani Green Energy Restricted Group comprises three operating subsidiaries of Adani Green Energy Limited (AGEL). The restricted subsidiaries operate solar power plants with a total capacity of 570 MW as of 30 September 2019.

Listed on the National Stock Exchange, India, AGEL is one of the largest solar power producers in India. Its operational capacity totaled 2.02GW as of 30 September 2019.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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
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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