Fitch affirms Adani Green Energy's RG rating at 'BBB-', with stable outlook

Credit rating agency Fitch Ratings on Friday affirmed its “BBB-” rating on Gautam Adani-controlled Adani Green Energy Restricted Group 2's $362.5 million senior secured notes and retained a “stable” outlook. The restricted group 2 includes three Special Purpose Vehicles (SPVs) of Adani Green Energy -- Wardha Solar Maharashtra Private Limited, Adani Renewable Energy (RJ) Limited, and Kodangal Solar Parks Private Limited.

“The restricted group's (RG) financial profile with rating-case debt-service coverage ratio (DSCR) of 1.44x is stronger than that commensurate with a 'BBB-' rating for the asset portfolio, reflecting considerable rating headroom at the current level. The credit assessment is constrained by India's (BBB-/Stable) 'BBB-' Country Ceiling,” the Fitch note said.

The credit assessment is supported by the company’s solar portfolio and credit metrics. Adani Green Energy Restricted Group 2 consists of 570MW of polycrystalline solar projects, a proven technology with a long operating history. The dollar-denominated notes are issued in part by each of the arms.

“The energy-yield forecast produced by third-party experts indicates an overall P50/one-year P90 spread of about 7 per cent, leading to the 'Midrange' volume risk assessment. For the last few years, the plants based in Karnataka have been marginally affected by lower irradiation. However, the performance of the projects in the FY23 has been slightly better than P90 forecasts due to better performance of the plant in Rajasthan. Curtailment risk is limited because of the must-run status of renewable energy plants in India,” Fitch said.

AGEL RG2 contracts 61 per cent of its total capacity with Solar Energy Corporation of India (SECI) and the remaining capacity to Maharashtra State Electricity Distribution Company and Bangalore Electricity Supply Company under 25-year fixed-price power purchase agreement (PPAs). “The PPAs protect the portfolio from merchant price volatility, resulting in our 'Stronger' price risk assessment,” Fitch said in its note.

Debt structure

The debt is a senior-secured 20-year partially amortising bond with a 24 per cent balloon repayment at maturity. “We assume the notes will be refinanced at maturity, with the refinancing debt to be amortised across the remaining PPA terms. Noteholders benefit from a standard security package and protective structural features that restrict distributions,” Fitch said.

Group Governance Risks

Meanwhile, the US-based credit rating agency said that governance weaknesses at the sponsor level and other group entities, including a highly concentrated shareholding structure across group entities and aggressive debt-funded investments at some entities, can expose all Adani group-related companies to higher contagion risks than previously considered, which can affect their financial flexibility.

“We believe these group-related risks to be lower for AGEL RG2 due to legal ring-fencing as per a strict cash flow waterfall mechanism in the US dollar notes. The group is re-evaluating its investment plans, especially in non-infrastructure businesses,” it noted.

The Adani family recently sold $1.9 billion in shares across various group entities to a US-based fund. Two of the boards at Adani group companies - Adani Transmission Limited (BBB-/Stable) and Adani Enterprise - approved a plan to raise a total of about USD2.5 billion from the stock market. The additional funding will support financial flexibility across Adani group entities, mitigating the risks, the Fitch noted further highlighted.

It is to be noted that AGEL RG2 is rated a notch higher than Adani Green Energy Limited RG 1. AGEL RG1 includes three subsidiaries of Adani Green Energy namely Adani Green Energy (UP) Limited, Parampujya Solar Energy Private Limited (PSEPL) and Prayatna Developer Private Limited.

AGEL RG2 has a tighter structure with largely amortising and longer-dated debt, a higher contribution from capacity contracted with sovereign-owned entities (61 per cent) than AGEL RG1 (57 per cent).

In addition, AGEL RG2's rating case DSCR of 1.44x is meaningfully higher than AGEL RG1's 1.32x.

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