Reliance Power Limited Instruments Non Fund Based Limit (B/G and L/C) Amount Rated Rs. 5200 crores Long Term Loans Rs. 695 crores* Long Term - Fund Based Limits Rs. 80 crores Short Term – Non fund based Limits Rs. 40 crores Commercial Paper/ Short-term debt Programme/Non-Convertible Debentures (with maturity of less than one year) *includes ECB of US$ 25 mn Rs. 1000 crores Rating [ICRA]A- (Negative) and [ICRA]A1 (reaffirmed; removed from rating watch) [ICRA]A- (Negative) (assigned) [ICRA]A- (Negative) (assigned) [ICRA]A1 (assigned) [ICRA]A1 (reaffirmed; removed from rating watch) ICRA has reaffirmed the long-term rating assigned to the non fund based facility, aggregating to Rs. 5200 crore*, of Reliance Power Limited (R-Power) at [ICRA]A- (pronounced as ICRA A minus) while the short term rating is reaffirmed at [ICRA]A1 (pronounced as ICRA A one) †. ICRA has also assigned the long-term rating of [ICRA]A- (pronounced as ICRA A minus) to Rs. 695 crore term loan facility and Rs. 80 crore fund based facility of R-Power. ICRA has also assigned short-term rating of [ICRA]A1 (pronounced as ICRA A one) to Rs. 40 crore short-term non-fund based facility of R-Power. ICRA has also reaffirmed the rating assigned to the Rs. 1000.0 crore commercial paper programme/ short-term debt programme/ Non-Convertible Debentures (with maturity of less than one year) of R-Power at [ICRA]A1 (pronounced as ICRA A one). The outlook on the long term rating is „Negative‟. The ratings, which were on watch since July 2014, have been removed from the rating watch. The removal of the rating watch follows calling off the MoU between R-Power, though Reliance CleanGen (RCL, its 100% subsidiary) and Jaiprakash Power Ventures (JPVL, subsidiary of Jaiprakash Associates Limited (JAL)), for the 100% acquisition of the entire hydroelectric power portfolio of JPVL. The ratings continue to draw strengths from the company‟s strong capitalization and satisfactory financial flexibility as demonstrated in its ability to tie-up loans at favorable terms with domestic & overseas lenders for its ongoing projects. Also, the performance of Rosa Power Project (1200 MW operational since April 2012), with entire capacity tied-up in a cost-plus based long term PPA with UPPCL, has remained satisfactory, as evident from higher returns as compared with allowed as a result of efficiency gains. Further, the cash collections from UPPCL have remained satisfactory as on date. Also, Vidarbha Industries Power Limited (VIPL) has declared CoD for its entire capacity (600 MW) from March 28, 2014 with the commencement of the PPA with R-Infra from April 1, 2014 on a “cost-plus” basis for 25 years. The ratings however remains constrained on account of increased risk profile of the company‟s subsidiaries in power generation business and larger support from the company to meet the cost overrun and the debt servicing obligations of some of its subsidiaries. The ratings also factor in significant uncertainties on timeliness and quantum of domestic gas availability for company‟s gas based project at Samalkot, given that the debt undertaken by its subsidiary Samalkot Power Limited is backed by the corporate guarantee from Reliance Power Ltd and the project continues to remain stranded. While MoP is actively looking at measures such as pooling of gas & viability based support for stranded gas based projects, the same is yet to be finalised. As the debt servicing for Samalkot project is scheduled to start from April 2015, the company intends to restructure debt by way of * 100 lakh = 1 crore = 10 million † For complete rating definition please refer to ICRA Website www.icra.in or any of the ICRA Rating Publications extension in project CoD & longer maturity of debt repayment and has commenced discussions with US-Exim. ICRA has also taken a note of significant cost overrun (to the extent of 30%) and time overrun (expected CoD shifted to March 2015 from June 2014) for ultra mega power project on the books of Sasan Power Limited (SPL), a wholly owned subsidiary of R-Power. While SPL has filed petitions with Central Electricity Regulatory Commission (CERC) for requesting tariff compensation separately on account of „Change in Law‟ & depreciation of INR against USD, order from CERC is still awaited. Also timelines for resolution of tariff compensation issue remains uncertain. With debt repayment due from March 2015, the company would be exposed to cash flow shortfalls in case the tariff compensation does not materialize before the said date, in which case funding support from the group would be required for fulfilling its debt servicing obligations. The ratings also take into account the residual project implementation risks in the ongoing projects as well as its status as mainly a holding company with limited asset base and revenue streams (except for Wind 45 MW project). ICRA also notes that projects remain exposed to counter-party credit risks associated with sale of power to state-owned distribution utilities as well as fuel supply risks, both for coal & gas, arising out of continuing domestic coal shortages leading to dependence on costlier sources of imported coal & uncertainties over gas availability. ICRA however notes that the counterparty credit risks are mitigated partially through adequate payment security mechanisms and fuel cost is a pass-through in a cost plus based PPA, which in turn mitigates price risk for its thermal power projects (Rosa and Butibori). Further, there are some measures being contemplated to alleviate the concerns of the power sector which includes price pooling of gas and subsidy for allowing pooling of high cost R-LNG; should these measures be successful in increasing the supply of gas to the power sector, the same would be positive from the credit perspective. While the company maintains limited borrowing levels on standalone basis, any higher incidence of leveraging to fund equity commitments in project SPVs, remains key rating sensitivity. The outlook on the Rating is Negative reflecting ICRA‟s concerns on the Sasan and Samalkot project. Company Profile Reliance Power Limited, a part of Reliance Group, promoted by Mr. Anil D Ambani, is the primary vehicle for investments in the power generation sector. Reliance Power has plans to develop a number of large sized projects, which also includes three Ultra Mega Power Projects of 4000 MW each awarded by Government of India (GoI) on Build, Own & Operate (BOO) basis through international competitive bidding process. The company came out with an IPO in February 2008 and raised Rs. 11560 crores for funding of equity contribution for some of the identified projects. As on September 2014, the company‟s generation capacity stands at 5285 MW which includes 5,100 MW of thermal capacity and 185 MW of renewable energy based capacity. Its operational projects include Rosa Project, Uttar Pradesh (1200 MW); Butibori Project, Maharashtra (600 MW), Solar Project, Rajasthan (40 MW), Concentrated Solar Power Project, Rajathan (100 MW) and Wind Project, Maharashtra (45 MW). The company is currently focused on implementation of the projects namely: 1) Ultra Mega Power Project (UMPP) of 3960 MW at Sasan, Madhya Pradesh (five units COD achieved; sixth unit expected to be operational by March 2015) and 2) 2262 MW at Samalkot, Andhra Pradesh (March 2015). Recent Results In FY 2014, on consolidated basis, R-Power recorded OI of Rs. 5147 crore and profit after tax of Rs. 1027 crore. In H1 FY 2015, on consolidated basis, R-Power recorded OI of Rs. 3536 crore and profit after tax of Rs. 497 crore. January 2015 For further details please contact: Analyst Contacts: Mr. Anjan Ghosh (Tel. No. +91-22-3047 0049) [email protected] Relationship Contacts: Mr. L. Shivakumar, (Tel. No. +91-22-2433 1084) [email protected] © Copyright, 2015, ICRA Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. 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