Care Ratings revises outlook on 11 solar developers to negative

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Care Ratings has revised its outlook to negative on the borrowing programmes of 11 solar power generators due to delayed payment to them by distribution companies in Telangana for electricity purchased.

These solar power producers have a combined installed capacity of 574 MW.

Care Ratings has also downgraded the ratings on borrowing programmes of two solar power generators who have installed capacity of 80 MW and sell electricity to DISCOMs in the state of Telengana.

“Off-taker risk, stemming from delays in payments by DISCOMs, has been a major rating weakness for solar power generators exposed to Telengana. Solar power generators in the state have been facing delays in payments by up to eleven months,” Care Ratings said in a press release.

As on June 30, 2019, total installed capacity of solar power in Telangana stood at 3621 MW. CARE has rated projects/SPVs having aggregate exposure towards Telangana DISCOMS of 900 MW. All these entities have long-term (25-years) power purchase agreements with Telangana DISCOMs at tariffs in the range of Rs 5.26 to 6.889 per unit.

Out of the above-mentioned aggregate capacity, 215 MW capacity have neither created Debt Service Reserve Account (DSRA) nor tied-up working capital limits. Also, some of the capacity have partial DSRAs created and are facing difficulties in creating additional DSRAs which were proposed to be created out of project cash flows as per sanctioned terms.

Only one-third of capacity out of impacted 900 MW capacity rated by CARE have fully created DSRAs and tied up working capital limits, though these working capital limits are also getting utilised to some extent on on-going basis.

The state utilities in Telangana are severely cash strapped and relying on state subsidies to survive. Furthermore, there is no revision in tariffs for FY2019-20.

As per the tariff order for FY2018-19, expected revenue deficit for DISCOMs was projected at Rs5940.47 crore for FY2018-19. Telangana state government provided budgetary allocation of Rs4984.30 crore on account of subsidy for FY2018-19. Out of subsidy payable by Government of Telengana for FY2017-18 of Rs 4777 crore, Rs 850 crore was not released by Government of Telengana in that year.

In view of worsening of liquidity position of these SPVs, apart from ability to service debt in timely manner, operation and maintenance activities and the desired plant availability can also get impacted, the ratings agency said.