Summary of Rated Instruments

Transcription

1 July 31, 2017 Jindal Power Limited Summary of Rated Instruments Instrument* Rated Amount Rating Action (in Rs. crore) Long-term fund-based bank facilities 8, ; reaffirmed Long-term non-fund based bank facilities 1, ; reaffirmed Long-term unallocated ; reaffirmed Total Bank Facilities 9, Non-Convertible Debentures (reduced from ) *Instrument Details are provided in Annexure-1 ; reaffirmed Rating action ICRA has reaffirmed the long-term rating of (pronounced ICRA A minus) 1 for the Rs. 9, crore 2 bank facilities of Jindal Power Limited (JPL). ICRA has also reaffirmed the rating for JPL s Rs crore (reduced from Rs crore) non-convertible debenture programmes at. The outlook on the long-term rating remains Negative. Detailed rationale The rating continues to factor in JPL s competitive capital cost as well as cost-efficient operations supported by the location of its plant in proximity to various coal blocks, which enables it to compete effectively on tariffs. While reaffirming the rating, ICRA has also taken into consideration revenue visibility emanating from long/medium-term PPAs in place for part of its capacity. While there has been limited activity on tenders floated for the long-term power tie-ups in the country, JPL has been able to intermittently enter into short-term PPAs. With this and limited debt-repayment obligations in the next two years, ICRA expects the debt-service coverage ratio to remain adequate in FY2018 and FY2019. Nevertheless, the company s ability to improve the plant load factor (PLF) while managing receivables will remain crucial thereafter in the back drop of ballooning repayments. JPL s rating, however, is constrained by elevated debt level following capacity addition, elongated receivables cycle, advances to group companies, and payment of additional levy to the government. Increase in the receivable turnover period has been due to delays in realisation of receivables from Tamil Nadu Generation and Distribution Corporation (TANGEDCO), which accounts for about 45% of JPL s revenues. While the average overdue 3 receivable turnover period for TANGEDCO declined from 3 months in FY2017 to 2 months in Q1 FY2018, the absolute amount of receivables continues to be sizeable as a result of increased billing since March ICRA notes that a sustained delay in correcting the receivable position and inability to tie up incremental capacity under medium/ long-term PPAs to improve the PLF could impact the credit profile of the company, and hence the outlook on the rating is Negative. Further, the company s profitability continues to remain exposed to its ability to secure long-term arrangement for coal sourcing; though linkage for part of the capacity and improved availability of coal in the domestic market provide some comfort. 1 For complete rating scale and definitions, please refer to ICRA s website or other ICRA Rating Publications lakh = 1 crore = 10 million 3 Refers to receivables that are due beyond one month of invoice

2 Going forward, JPL s operating performance in terms of capacity utilisation, tariffs, coal cost, and working-capital cycle will remain key rating sensitivities. Further, ICRA notes that the credit profile of JPL would continue to remain sensitive to the extent of linkages with the parent Jindal Steel Power Limited (JSPL), given the latter s weak credit profile. Nevertheless, ICRA takes note of the recent conclusion of refinancing for part of JSPL s debt, which has facilitated a reduction in its annual debtrepayment obligations as well as favourable sectoral developments which are supporting an improvement in its profitability, thereby easing its liquidity pressures to an extent. Key rating drivers Credit strengths Competitive capital cost: Supported by efficient project management, lower interest during construction (facilitated by upfront equity-funding) and large capacity set-up providing benefits of allied infrastructure, JPL has established a large-scale, 3,400 mega-watt (MW) thermal power capacity at a very competitive capital cost of ~Rs. 4.4 crore/mw. Although the relatively lower capital cost compared to peers provides a competitive edge to JPL while bidding for PPAs, ICRA notes that the same has been partially diluted by loading of sizeable debt-funded investments and loans advances on JPL s balance sheet. Established track record of cost-efficient operations: ICRA draws comfort from JPL s experience and a satisfactory demonstrated track record of efficient operations in thermal power generation. Even though the plant is operating at sub-optimal capacity utilization, company s continued focus on cost optimization has facilitated further reduction in cost of power generation during the past one year. The low cost of power generation favorably impacts its merit-order position while supplying to state utilities under PPAs as well as enables it to explore other avenues for sale of power, such as sales to bulk customers and merchant sales. Vantage location of plant in terms of proximity to various coal blocks: Location of JPL s power plants in proximity to multiple coalfields results in lower logistics cost (which can be 15-25% of the coal cost), thereby providing it with access to coal at competitive cost, despite coal linkages for only 1,200 MW capacity. Credit weaknesses Exposure to power off-take and raw material availability/cost risks: Of the total of 3,400 MW of thermal power capacity, JPL has so far entered into long-term PPAs for only 810 MW (approx 25%). Thus, the balance 75% of its total capacity remains exposed to off-take and price risks. Since the all- India thermal PLFs have been on a continuous decline over the past six years, lack of adequate capacity tie-up under long-term PPAs is posing challenges for JPL in achieving optimal capacity utilisation at remunerative rates. Further, JPL has coal linkage for only ~35% of its capacity (1,200 MW), with the coal supply limited to the extent of PPAs. For the remaining 2,200 MW, it remains dependent upon market purchase and e-auctions. While JPL had emerged as a preferred bidder for two coal blocks (Gare Palma IV/23 and Tara Coal Block) in the Schedule II and III Coal Mines auction, the Government has not accepted its bids, which was upheld by the High Court. Nevertheless, the matter remains sub-judice in the Hon ble Supreme Court. Elongated receivables cycle: Around three-fourths of JPL s revenue generating capacity (~1,300-1,600 MW) is being run on long-term as well as short-term PPAs with state distribution utilities, with TANGEDCO alone accounting for ~two-thirds of the operational PPAs and ~45% of revenues over

3 the past few months. Given the high dependence of revenues and receivables from the state distribution utilities, JPL faces the risk of an elongated receivable cycle, an industry-wide characteristic. More specifically, delay in payments by TANGEDCO has resulted in increased receivables for the company. Although situation has improved after TANGEDCO signed for UDAY scheme in January 2017, JPL s receivables from TANGEDCO 4 continue to be sizeable, equivalent to four months of sales as on June 30, Elevated debt level following capacity addition, advances to group companies, and payment of additional levy to government: JPL s dependence upon debt increased considerably during past four years due to sizeable capacity addition, higher working capital requirements, advances to JSPL (for purchase of Captive Power Plant from JSPL) and payment of additional levy to government post cancellation of captive coal blocks. As the operating profits and cash accruals didn t witness the same trend, the debt metrics weakened. Nevertheless, ICRA notes that JPL s debt per MW of capacity remains comfortable at ~Rs. 2.5 crore. Furthermore, the cash flow profile is supported by long tenure (up to 17.5 years) of project loans, which account for ~40% of its term debt. JPL s project loans were refinanced in December 2015, following which, repayment tenure for project loans increased from about 8 years to more than 17 years. Weak credit profile of the parent company, though improving performance trend provides comfort: Over the past couple of years, when the credit profile of JSPL JPL s parent faced significant deterioration, JPL extended sizable advances to it, aggregating about Rs. 4,600 crore 5. JPL s credit profile would continue to remain sensitive to the extent of linkages with JSPL, given the latter s weak credit profile. Nonetheless, ICRA takes note of the recent conclusion of refinancing for part of JSPL s debt, which has facilitated a reduction in its annual debt-repayment obligations, as well as favourable sectoral developments which are supporting an improvement in profitability, thereby easing liquidity pressures to an extent. Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable Criteria Corporate Credit Rating Methodology Rating Methodology for Thermal Power Producers About the company: Incorporated in 1995, JPL is involved in power-generation business with 3,400 MW of thermal powergeneration capacity. It is promoted and 96.43% owned by JSPL. JPL s first power plant (EUP 6-1), having capacity of 1,000 MW (250 MW X 4), commenced operations in September This plant is located at Tamnar in Raigarh district of Chhattisgarh, close to Gare Palma IV/23 coal blocks, which were earlier captive mines of JPL but have been de-allocated since September The company also has a 2,400- MW power plant, located adjacent to the EUP-1. This plant is divided into two phases with each phase having two units of 600 MW each. The first phase of 1,200 MW (EUP-2) has coal-supply linkage from Coal India Limited while the coal for the second phase of 1,200 MW (EUP-3) is not tied up at present. 4 TANGEDCO accounts for ~45% of JPL s revenues and ~85% of its receivables 5 Excludes investments/loans advances to subsidiaries and other group companies 6 End Use Plant

4 Table 1: Key Financial Indicators (Audited) FY2016 FY2017 Operating Income (Rs. crore) 2, ,118.7 PAT (Rs. crore) OPBDIT/ OI (%) 21.2% 33.6% RoCE (%) -2.0% 0.0% Total Debt/ TNW (times) Total Debt/ OPBDIT (times) Interest coverage (times) NWC/ OI (%) 23% 32% OI: Operating Income; PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation; ROCE: PBIT/Avg (Total Debt + Tangible Net-Worth + Deferred Tax Liability - Capital Work - in Progress); NWC: Net Working Capital Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable

5 Rating History for the last three years: Table: Rating History S. No Name of Instru ment Fundbased bank facilitie s Nonfund based bank facilitie s Unalloc ated bank facilitie s Longterm Non- Convert ible Debentu res Type Longterm Longterm Longterm Current Rating Rated Date amount Rating in (Rs. FY2018 Crore) Jul , , Date Rating in FY2017 Jun 2016 Mar 2016 Jan 2016 [ICRA]A [ICRA]A [ICRA]A [ICRA]A Chronology of Rating History for the past 3 years Date Rating in FY2016 Date Rating in FY2015 symbol stands for Under rating watch with developing implications Complexity level of the rated instrument: ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website Nov 2015 Sep 2015 May 2015 Dec 2014 Sep 2014 Apr 2014 [ICRA]AA (Stable) [ICRA]AA (Stable) [ICRA]AA (Stable) - Withdrawn

6 Annexure-1 Details of Instruments Name of the instrument Date of Coupon Maturity Size of the issue issuance Rate^ Date (Rs. Cr) Current Rating Term loan Mar , Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Mar Term loan Dec Term loan Dec Term loan Dec , Term loan Dec Term loan Jun Term loan Dec Term loan Jun Cash credit Non-fund based limits , Unallocated NCD-I 22 Dec Dec SBI Base NCD-II 22 Dec Dec Rate Plus 1% NCD-III 22 Dec Dec SBI Base NCD-IV 2 Apr 2016 Rate Plus 14 Aug % NCD* Source: JPL; ^ Present effective rate of interest for term loans. Rate of interest on term loans is linked to Base Rates of respective Banks; * Not placed

7 Name and contact details of Rating Analyst(s): Jayanta Roy Deep Inder Singh Nidhi Marwaha Name and contact details of Relationship Contact: L. Shivakumar About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody s Investors Service is ICRA s largest shareholder. For more information, visit Copyright, 2017, ICRA Limited. All Rights Reserved Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.

8 Registered Office ICRA Limited 1105, Kailash Building, 11th Floor, 26, Kasturba Gandhi Marg, New Delhi Tel: , Fax: Corporate Office Mr. Vivek Mathur Mobile: Building No. 8, 2nd Floor, Tower A, DLF Cyber City, Phase II, Gurgaon Ph: (D), / (B) Fax; Mumbai Mr. L. Shivakumar Mobile: shivakumar@icraindia.com 3rd Floor, Electric Mansion Appasaheb Marathe Marg, Prabhadevi Mumbai , Board : ; Fax: Chennai Mr. Jayanta Chatterjee Mobile: jayantac@icraindia.com 5th Floor, Karumuttu Centre 634 Anna Salai, Nandanam Chennai Tel: ; Fax: Ahmedabad Mr. L. Shivakumar Mobile: shivakumar@icraindia.com Sakar -II, Ellisbridge, Ahmedabad Tel: , , ; Fax: Hyderabad Mr. Jayanta Chatterjee Mobile: jayantac@icraindia.com Kolkata Mr. Jayanta Roy Mobile: jayanta@icraindia.com A-10 11, 3rd Floor, FMC Fortuna 234/3A, A.J.C. Bose Road Kolkata Tel / / , Fax Bangalore Mr. Jayanta Chatterjee Mobile: jayantac@icraindia.com 'The Millenia' Tower B, Unit No. 1004,10th Floor, Level , 1 2, Murphy Road, Bangalore Tel: ; Fax: Pune Mr. L. Shivakumar Mobile: shivakumar@icraindia.com 5A, 5th Floor, Symphony, S.No. 210, CTS 3202, Range Hills Road, Shivajinagar,Pune Tel: ; Fax: th Floor, Shobhan, /AB. Somajiguda, Raj Bhavan Road, Hyderabad Tel: