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Icra revises rating for Reliance Powers’ Rs 8,015-crore debt to ‘default’

Shritama Bose
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Icra on Thursday downgraded Reliance Power’s (RPower) borrowings worth Rs 8,015 crore to the default grade, citing non-cooperation from the issuer. The company’s total debt stood at Rs 31,697 crore at the end of March 2018. That RPower has defaulted was confirmed by the signing of an inter-creditor agreement (ICA) between its six lenders on July 6, Icra said.

The downgraded facilities include long-term non-convertible debentures (NCDs) worth Rs 1,000 crore, bank guarantees and letters of credit worth Rs 3,712 crore, long-term loans worth Rs 2,183 crore, long-term fund-based limits worth Rs 80 crore, short-term non-fund-based limits worth Rs 40 crore as well as commercial papers (CPs) and short-term NCDs worth Rs 1,000 crore.

In its rating rationale, Icra said the liquidity profile of the company, along with its subsidiaries, continues to remain stretched as evident from considerable decline in the net cash accruals in FY19 and net-worth erosion due to significant impairment of assets.  “The leveraging levels for the company continue to remain high. This has resulted in increase in interest expenses and associated refinancing risk. The term loans have been primarily deployed in the special purpose vehicles (SPVs) to meet the cash-flow mismatches,” analysts at Icra wrote.

The rating rationale added that the ratings assigned to RPower remain constrained by the fact that it is mainly a holding company with limited asset base and revenue streams, except a 45-megawatt (MW) wind project. As a result, debt servicing by the company remains dependent on the timely ploughing back of funds from the project SPVs.

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Icra pointed to deterioration in the financial performance of RPower subsidiaries Rosa Power and Vidarbha Industries as a cause for concern. There is also significant uncertainty with regard to the company’s non-operational Samalkot project. The company is in talks with lenders to restructure the debt whereby outstanding principal would be repaid in three equal annual instalments starting from June 2020.

However, given the concerns related to availability of gas in India, the company is now planning to deploy the unused equipment of 750-MW capacity to Bangladesh, out of the total planned capacity of 2,250 MW at Samalkot.

“Reliance Bangladesh LNG & Power (RBLPL), the wholly owned subsidiary of RPower, is developing the Bangladesh power project. RBLPL has finalised the EPC contractor for the power project and received the approval for financing of the project from the Asian Development Bank. With relocation of this project to Bangladesh, RPower would remain exposed to project execution risk,” Icra analysts observed.

As per the terms of the ICA, RPower and its subsidiary Vidarbha Industries Power have a 180-day timeframe to implement a resolution plan.