Madhya Bharat Power Corporation Limited Ratings Long Term Fund Based Bank -Term Loan Short Term Non-Fund Based Bank Long/Short Term Bank Total Amount 771.88 10.00 80.00 January 02, 2018 861.88 (Rs. Eight Hundred & Sixty One Crore &Eighty Eight lakhs only) Rating 1 CARE BB; Stable [Double B; Outlook: Stable] CARE A4 [A Four] CARE BBB-(SO); Stable [Triple B Minus (Structured Obligation); Outlook: Stable]* * backed by Corporate guarantee of Chhattisgarh Investment Ltd (rated CARE BBB-) Rating Action Revised from CARE BB+ [Double B Plus] to CARE D [Single D] and subsequently revised to CARE BB [Double B] Revised from CARE A4 [A four] to CARE D [Single D] and again to CARE A4 [A Four] Reaffirmed Detailed Rationale & Key Rating Drivers The revision in ratings of bank facilities of Madhya Bharat Power Corporation Limited (MBPCL) to CARE D factors in three instances of delay in servicing its interest payment obligations by 2 to 10 days. The last delay occurred on December 01, 2016 (due-date) which was regularized on December 03, 2016. Furthermore, the revision in rating of bank facilities of MBPCL from CARE D to CARE BB/ CARE A4 takes into consideration the completion of restructuring process with additional loan amount sanctioned by its lenders. The ratings assigned continue to remain constrained by significant time and cost overrun in completion of project, aggravating project execution risk, MBPCL s limited experience in setting up relatively large-sized hydro power plants and absence of firm power off-take arrangement. However, the ratings derive strength from financial resourcefulness of project sponsors, Sarda Energy & Minerals Limited (SEML, rated CARE A/CARE A1 ) and Chhattisgarh Investment Limited (CIL, rated BBB- ). The ratings also factor liquid investments in promoter company CIL and other group firm, which would be made available for MBPCL in case of requirement. Completion of the project within revised timelines and cost remains the key rating sensitivity. Detailed description of the key rating drivers Key Rating Strengths Strong promoters albeit limited experience in setting hydro power project MBPCL benefits from resourcefulness of its promoter the Sarda group, which has established itself in the metals & mining sector over the past four decades. However, the group has limited experience in setting up and operating hydro 1 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited
power plants. Prior to this project, the group has implemented a small hydro project with capacity of 5 MW in Uttaranchal and 24 MW in Chhattisgarh. Furthermore, the group under Chhattisgarh Hydro Power LLP has been allotted four run of river scheme small hydel power projects with total installed capacity of 77 MW. The first 24 MW project at Gullu has been synchronized with state power grid on March 31, 2017 and has started generating power. The project has achieved commercial production in the month of July 2017. The firm has signed long term Power purchase agreement (PPA) with Chhattisgarh State Power Distribution Co. Ltd for supply of power from the Gullu project. Completion of restructuring of loan along with additional debt sanctioned by all the lenders albeit instances of delays in interest servicing in FY17 The lenders have approved additional loan for the cost overrun of the project amounting to Rs.643.45 crore (revised cost of project of Rs. 1187.45 crore as compared to earlier Rs. 544 crore). In accordance with the increase in project cost, the lenders have also agreed for additional debt. Of the same, PFC has the highest share of debt at Rs. 441.07 crore followed by IDBI at Rs. 190.80 crore and PTC at Rs. 128.11 crore. As per the original sanction terms, the principal payment of the term loans was expected to commence on January 15, 2015. However, as per the revised sanction letter, principal payment of the term loans will commence after 12 months of moratorium period from the revised COD of the project that is June 30, 2018. During FY17, there were three instances of delays in interest payment amounting to Rs. 1.82 crore with the delay ranging from 2 days to 10 days. All the three delays pertain to interest cost payment of IDBI bank. Key Rating Weaknesses Time and cost overrun The power project has been delayed significantly from its scheduled COD of July 2014 on various accounts such as delays in land acquisition; damages in earthquake, unforeseeable geological challenges etc that were beyond the control of the company. At the same time, the project cost has also increased significantly due to price variations, additional work, change in designs, etc. The lenders have accordingly accepted a cost overrun of Rs. 643.02 crore taking the total cost to Rs. 1,187 crore. The revised cost per MW has more than doubled since the cost overrun from Rs 5.67 crore to Rs 12.36 crore. As a result, the company would have to enter into a PPA with higher tariff to keep the project viable. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Criteria for Short Term Instruments Rating Methodology: Factoring Linkages in Ratings Rating methodology Power Companies Financial ratios Non-Financial Sector About the Company Madhya Bharat Power Corporation Limited (MBPCL), promoted by Sarda Energy & Minerals Limited (SEML, rated CARE A/CARE A1, holds 65.82%) and Chhattisgarh Investment Limited (CIL, rated CARE BBB-, holds 21.67%) is setting up a runof-the-river 2x48 MW hydro - electric power project on Rongni Chu tributary of Teesta River in Sikkim. Brief Financials : Not Applicable as the company is in project stage Status of non-cooperation with previous CRA: Not Applicable Any other information:not Applicable Rating History for last three years: Please refer Annexure-2 2 CARE Ratings Limited
Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Sharmila Jain Tel: 022-6754 3638 Email: sharmila.jain@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/ Name of the Instrument Fund-based - LT-Term Loan Non-fund-based - ST- Bank Guarantees Non-fund-based - LT/ ST- Letter of credit Date of Issuance Coupon Rate Maturity Date Size of the Issue Rating assigned along with Rating Outlook - - - 771.88 CARE BB; Stable - - - 10.00 CARE A4 - - - 80.00 CARE BBB- (SO); Stable / CARE A3 (SO) 3 CARE Ratings Limited
Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank 1. Fund-based - LT-Term Loan 2. Non-fund-based - ST- Bank Guarantees 3. Non-fund-based - LT/ ST-Letter of credit Type Current Ratings Amount Outstanding Rating LT 771.88 CARE BB; Stable 2017-2018 Rating history 2016-2017 2015-2016 - 1)CARE BB+; 1)CARE BB+ Stable (15-Jan-16) (31-Dec-16) 2)CARE BB+ (06-Apr-15) ST 10.00 CARE A4-1)CARE A4 1)CARE A4 (31-Dec-16) (15-Jan-16) 2)CARE A4 (06-Apr-15) LT/ST 80.00 CARE BBB- (SO); 1)CARE BBB- (SO); Stable / CARE A3 (SO) Stable / (15-Nov-17) CARE A3 2)Provisional (SO) CARE BBB- (SO); Stable / CARE A3 (SO) (20-Oct-17) - - - 2014-2015 - - 4 CARE Ratings Limited
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