June 19, 2023
Alfanar Energy Private Limited: Rating downgraded with revision in outlook to
Negative
Summary of rating action
Previous Rated Current Rated
Instrument* Amount Amount Rating Action
(Rs. crore) (Rs. crore)
Term loan [ICRA]BBB+ (Negative); downgraded from [ICRA]A- with revision in
1,570.00 1,570.00
outlook from Stable
Total 1,570.00 1,570.00
*Instrument details are provided in Annexure-I
Rationale
The rating action for the long-term rating assigned to Alfanar Energy Private Limited (AEPL) factors in the significant under-
performance of its 301.4- MW wind power project in Gujarat with the actual generation remaining below the appraised P-90
estimate since commissioning in May 2021. This is being attributed to lower-than-expected wind speeds along with initial
stabilisation issues. After being commissioned in April 2021, the project’s performance remained subdued in FY2022, with the
average PLF for the year at 77% of the P-90 estimate. While the generation improved by 4% in FY2023 over FY2022, it continued
to be below the P-90 estimate because of lower-than-expected wind speeds. This in turn has adversely impacted the
company’s debt coverage metrics, with the debt service coverage ratio (DSCR) on external debt remaining modest at below
1.15x over the past two years. The ability of the company to improve its generation performance in line with the appraised
estimate remains a key monitorable, going forward.
The rating also remains constrained by the vulnerability of cash flows to the variation in weather conditions and wind
seasonality, given the single part tariff under the PPA. Additionally, the company remains exposed to asset concentration risk
as the entire capacity is located at a single site in Gujarat. Further, the project’s credit metrics remain exposed to the movement
in interest rates, given the single-part PPA tariff and the leveraged capital structure. However, this is partly mitigated by the
fixed interest rate for 62% of the sanctioned debt for a period of five years. Also, the company remains exposed to the
regulatory challenges of implementing the scheduling and forecasting framework for the wind power sector, given the variable
nature of wind generation.
However, ICRA continues to draw comfort from the high revenue visibility and the low offtake risk for the 301.4-MW wind
power project of AEPL, with the presence of a long-term (25-year) power purchase agreement (PPA) with Solar Energy
Corporation of India Limited (SECI) at a fixed tariff of Rs. 2.45 per unit. SECI is an intermediary counterparty and has signed a
power supply agreement (PSA) with the state-owned distribution utilities (discoms) in Bihar and Delhi and with Tata Power
Delhi Distribution Company, which are the ultimate offtakers.
The rating further positively considers the high tariff competitiveness, with the PPA tariff being well below the average power
purchase cost of the offtaking discoms. Moreover, the payment security mechanism in the PPA/PSA is relatively superior
(against the state policy PPAs), given the provision for letter of credit equal to an average one-month billing under the PPA and
the benefits available to SECI under the tripartite agreement (TPA) with the Government of India, the Reserve Bank of India
and the state government. The payments from SECI have remained timely so far. The additional provisions in the PPA/PSAs
related to compensation in case of grid curtailment or backdown and the termination liability in the event of default by the
buyer provide comfort.
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Further, the rating draws comfort from the long maturity profile of the project debt and a competitive interest rate. The
promoter contribution has been infused through a mix of equity and compulsorily convertible debentures (CCDs). The
promoter CCDs remain subordinated to the debt availed from the project lenders. ICRA also notes the presence of an
experienced equipment supplier and O&M contractor – Siemens Gamesa Renewable Energy Private Limited (for 250.8 MW).
The O&M for the balance capacity has been tied up with Senvion Wind Technology Private Limited.
The Negative outlook assigned to the company factors in the likelihood of the generation remaining well below the appraised
generation estimate, leading to weak debt coverage metrics against ICRA’s expectations.
Key rating drivers and their description
Credit strengths
Long-term PPA and superior tariff competitiveness – AEPL has low offtake risks owing to the long-term (25-year) PPA at a
highly competitive tariff of Rs. 2.45 per unit for the entire project capacity. The long-term PPA provides revenue visibility to
the company. SECI is an intermediary counterparty and has signed PSAs with the state-owned distribution utilities of Bihar,
Delhi and Tata Power Delhi Distribution Company, which are the ultimate offtakers. Further, the applicable tariff for the
ultimate offtakers is highly competitive compared to the average power purchase cost of the utilities. Additionally, the
regulatory uncertainty for this project is low as the tariffs under the PPA and the PSA have already been adopted by the
regulatory bodies.
Relatively superior PPA with SECI and low counterparty credit risk – The PPA with SECI is superior to the state policy PPAs
due to a favourable payment security mechanism that has a provision for letter of credit equal to average one-month billing
as well as a provision for generation compensation for grid unavailability or backdown and termination liability in the event of
default by the discoms. Further, SECI has been included in the tripartite agreement (TPA) with the Government of India, the
Reserve Bank of India and the state government that provides comfort against payment delays from the discoms. These
factors, coupled with the strong credit of SECI and the high tariff competitiveness, mitigate the counterparty credit risk
associated with the ultimate offtakers.
Established track record of Alfanar Group in power sector – Though the Alfanar Group has limited experience in the renewable
energy sector in India, this risk is mitigated to a certain extent by the Group’s established track record in the power sector
through its EPC business in Saudi Arabia and its renewable projects in other countries. In the power sector, the Group has set
up thermal power projects with a cumulative capacity of 850 MW. In the transmission sector, it has set up various sub-stations,
transmission lines and underground cable projects in Saudi Arabia. Further, the Group has experience in renewable energy
with the development of renewable projects in Egypt and Spain in the recent past.
Credit challenges
Vulnerability of cash flows to variation in weather conditions – As the tariffs are one part in nature, the company may book
lesser revenues if the power generation declines due to the variation in weather conditions. This in turn would affect its cash
flows and debt servicing ability. This risk is amplified by the single location of the project. The generation performance
remained subdued in FY2022 and FY2023 with the actual average PLF at ~77% and ~80%, respectively, of the P-90 estimate
owing to the initial stabilisation period post commissioning, the impact of the measures taken to resolve certain operational
issues on machine availability and the wind pattern. This has adversely impacted the company’s debt coverage metrics. Going
forward, AEPL’s ability to meet the appraised P-90 PLF level remains important from a credit perspective.
Limited track record of Group in developing and operating renewable energy projects in India – The Group is a relatively new
entrant in India, with this project under AEPL being its first renewable project in India. Hence, the track record of the PLF in
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line with the P-90 estimate remains to be demonstrated. However, this is mitigated to an extent by the presence of an
experienced O&M contractor – Siemens Gamesa Renewable Energy Private Limited.
Interest rate risk –The company’s debt metrics remain exposed to the movement in interest rates due to the single-part tariff
under the PPA and the leveraged capital structure. However, this is partly mitigated by the fixed interest rate for 62% of the
debt sanctioned for a period of five years.
Regulatory risk of implementing scheduling and forecasting framework for wind sector – The company’s operations remain
exposed to the regulatory risks pertaining to scheduling and forecasting requirements for renewable energy projects, given
the limited experience of the developers in operating under Indian conditions and the variable nature of wind generation.
Liquidity position- Adequate
The liquidity of the company is expected to remain adequate with the cash flow from operations likely to be adequate in
relation to the debt servicing obligations, supported by long-term PPA and timely payments from SECI. Further, comfort is
drawn from the DSRA equivalent to six months of debt servicing, available in the form of bank guarantee. The company had a
cash balance of Rs. 55.46 crore as on March 31, 2023.
Rating sensitivities
Positive factors – Given the Negative outlook, a rating upgrade is unlikely for AEPL in the near term. The outlook can be revised
to Stable, in case of improvement in the actual generation performance by the wind power project closer to appraised P90
estimate.
Negative factors – The rating would be downgraded if the actual generation performance continues to remain lower than the
appraised P-90 level, leading to cumulative DSCR on project debt falling below 1.20x. Also, delays in receiving payments from
the offtaker will have an adverse impact on the liquidity profile and would be another trigger for a downgrade.
Analytical approach
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable rating methodologies
Rating Methodology for Wind Power Producers
Parent/Group support Not Applicable
Consolidation/Standalone The rating is based on the standalone financial profile of the company
About the company
AEPL is promoted by Alfanar Company (KSA) and Alfanar Power Limited (UK), which are subsidiaries of Alfanar Principals.
Alfanar is a family-owned Saudi Arabia-based group, with the main promoters being three brothers, Mr. Abdul Salam Al
Multaq, Mr. Sabah Mohammad Al Multaq and Mr. Hisham Mohammad Al Multaq. AEPL has set up a 301.4-MW wind power
project in Bhuj, Gujarat. The plant was commissioned in phases - from July 2020 to March 2021 - and the final CoD was
achieved on April 01, 2021, ahead of the scheduled CoD of May 29, 2021. The total project cost is ~Rs 2,117.08 crore which is
funded by debt to equity of 73:27. The capacity was awarded via a reverse bidding process conducted by SECI under its
tranche-III wind power auction for 2 GW of inter-state transmission system (ISTS)-connected projects.
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Key financial indicators
FY2022 (Audited) FY2023 (Provisional)
Operating income 179.1 193.9
PAT -100.3 -34.9
OPBDIT/OI 93.2% 91.5%
PAT/OI -56.0% -18.0%
Total outside liabilities/Tangible net worth (times) -22.6 -16.0
Total debt/OPBDIT (times)* 8.60 10.48
Interest coverage (times)* 1.30 1.45
PAT: Profit after tax; OPBDIT: Operating profit before depreciation, interest, taxes and amortisation; *external debt only
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for past three years
Chronology of rating history
Current rating (FY2024)
for the past 3 years
Amount Amount Date & rating Date & rating Date & rating
Instrument Date & rating in FY2023
rated outstanding as on in FY2024 in FY2022 in FY2021
Type
(Rs. Mar 31, 2023
June 19, 2023 May 12, 2022 Jun 08, 2021 Jul 16, 2020
crore) (Rs. crore)
Long [ICRA]BBB+ [ICRA]A- [ICRA]BBB+
1 Term loan 1570.00 1397.01 [ICRA]A- (Stable)
Term (Negative) (Stable) (Stable)
Short-
[ICRA]A- [ICRA]BBB+
Non-fund based term/ - [ICRA]A- (Stable)/
2 - (Stable)/ (Stable)/
letter of credit* Long- [ICRA]A2+(withdrawn)
[ICRA]A2+ [ICRA]A2
term
Long term - Long- - [ICRA]A- [ICRA]BBB+
3 - -
Unallocated term (Stable) (Stable)
*Sublimit of term loan
Complexity level of the rated instruments
Instrument Complexity Indicator
Term loan Simple
The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated.
It does not indicate the risk related to the timely payments on the instrument, which is rather indicated by the instrument's
credit rating. It also does not indicate the complexity associated with analysing an entity's financial, business, industry risks or
complexity related to the structural, transactional or legal aspects. Details on the complexity levels of the instruments are
available on ICRA’s website: Click Here
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Annexure I: Instrument details
Amount
Coupon
ISIN Instrument Name Date of Issuance Maturity Rated Current Rating and Outlook
Rate
(Rs. crore)
NA Term loan February 2022 - June 2042 1570.0 [ICRA]BBB+ (Negative)
Source: Company
Please click here to view details of lender-wise facilities rated by ICRA
Annexure II: List of entities considered for consolidated analysis- Not applicable
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ANALYST CONTACTS
Sabyasachi Majumdar Girishkumar Kadam
+91 124 4545304 +91 22 6114 3441
[email protected] [email protected]
Vikram V Pooja Goyal
+91 40 4547 4829 +91 22 6169 3349
[email protected] [email protected] RELATIONSHIP CONTACT
L. Shivakumar
+912261143406
[email protected]
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected] Helpline for business queries
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
[email protected]
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