Singapore: Moody’s Investors Service has upgraded to Ba2 from Ba3 the senior unsecured ratings assigned to the USD notes issued by Azure Power Energy Ltd. At the same time, Moody’s has upgraded to Ba1 from Ba2 the ratings of senior unsecured USD notes issued by Azure Power Solar Energy Private Limited (Azure Power Solar) and backed by Azure Power Global Limited (APGL).
Azure Power Energy is a special purpose vehicle that has used the proceeds from the USD notes to subscribe to senior secured Indian rupee (INR)-denominated bonds and loans as external commercial borrowings issued by 17 restricted subsidiaries in the restricted group (RG-1). Azure Power Energy is also part of RG-1.
Azure Power Solar is a special purpose vehicle that has used the proceeds from the USD notes to subscribe to senior secured INR-denominated bonds and loans as external commercial borrowings issued by 10 restricted subsidiaries in the restricted group (RG-2). Azure Power Solar is also a part of RG-2.
The outlook on the ratings is stable.
“The upgrade reflects our increased expectation that Caisse de depot et placement du Quebec (CDPQ, Aaa stable), which is now the majority shareholder of APGL, will provide support to Azure Power Energy and Azure Power Solar in case of need,” says Abhishek Tyagi, a Moody’s Vice President and Senior Analyst.
CDPQ has recently increased its stake in APGL to 50.9%, making it APGL’s majority shareholder. Since March 2017, CDPQ has more than doubled its stake in APGL, demonstrating the growing strategic nature of its investment in APGL as well as its commitment to the group.
Furthermore, the position of CDPQ as a majority shareholder will strengthen APGL’s corporate governance and will allow CDPQ to maintain close oversight of the group’s strategy and operations.
The two restricted groups — RG-1 and RG-2 — represent around 70% of APGL’s operational capacity, and their operational and financial metrics are of significant importance to its own performance. The holders of senior unsecured notes issued by Azure Power Solar also benefit from a guarantee from APGL, thereby establishing a link between the credit profiles of RG-2 and APGL. APGL’s guarantee on the USD notes will not be released unless RG-2’s combined leverage ratio, defined as debt/EBITDA, falls below 5.5x.
The one-notch differential between the ratings of Azure Power Energy and Azure Power Solar is primarily driven by Azure Power Solar’s lower leverage and the better structural features of the notes, including cash-traps that reduce refinancing risk.
The stable rating outlook reflects Moody’s expectation that incremental cash flows from newly commissioned projects under long-term power purchase agreements will keep credit metrics within the tolerance levels for the respective Ba1 and Ba2 ratings over the next 12-18 months, without any material ramp-up risk, and that APGL’s credit quality will not deteriorate materially.
Moody’s could upgrade Azure Power Energy’s rating if FFO/debt and FFO interest coverage remain above 10% and 2.2x on a sustained basis and if APGL’s credit quality improves.
Moody’s could downgrade Azure Power Energy’s rating if (1) APGL’s credit quality deteriorates; (2) RG-1’s FFO/debt falls towards 5% on a sustained basis; and/or (3) support from APGL’s shareholders weakens, as reflected by a meaningful decrease in CDPQ’s ownership.
Moody’s could upgrade Azure Power Solar’s rating if FFO/debt and FFO/interest coverage remain above 12% and 2.5x on a sustained basis and if APGL’s credit quality improves. Such improvements could be achieved with a track record of larger and stable operations.
Moody’s could downgrade Azure Power Solar’s rating if (1) APGL’s credit quality deteriorates; (2) Azure RG-2’s FFO/debt falls towards 7% on a sustained basis; and/or (3) support from APGL’s shareholders weakens, as reflected by a meaningful decrease in CDPQ’s ownership.
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.
Azure Power Energy Ltd is a special purpose vehicle, which was incorporated in Mauritius in 2017 as a wholly owned subsidiary of Azure Power Global Limited (APGL). The restricted subsidiaries under the USD notes issuance are wholly or majority owned ultimately by APGL. The restricted subsidiaries operate solar power plants with a total capacity of 621 MW as of March 2020.
Azure Power Solar Energy Private Limited is a special purpose vehicle, which was incorporated in Mauritius in 2018 as a wholly owned subsidiary of APGL. The restricted subsidiaries under the USD notes issuance are ultimately majority owned by APGL. The restricted subsidiaries operate solar power plants with a total capacity of 647.5 MW as of March 2020.
Listed on the New York Stock Exchange, APGL is one of the largest solar power companies in India. Its total operational capacity was 1,804 MW across 24 states in India as of January 2020.
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