Lakadia Vadodara Transmission Project Limited: Rating assigned - ICRA Limited
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May 04, 2020
Lakadia Vadodara Transmission Project Limited: Rating assigned
Summary of rating action
Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Term loan 1417.00 [ICRA]BBB- (Stable); assigned
[ICRA]BBB- (Stable)/ [ICRA]A3;
Non-fund Based Letter of Credit# (710.00)
assigned
Total 1417.00
*Instrument details are provided in Annexure-1; #sublimit of term loan facility
Rationale
The assigned rating takes into consideration the track record of the Sterlite Group in implementation and operations of
power transmission projects. In India, the Group has completed nine power transmission projects till date; four more
transmission projects, including Lakadia Vadodara Transmission Project Limited (LVTPL), are at various stages of
implementation. The commissioned power transmission projects have been operating at healthy line availability of more
than 99%. LVTPL also derives synergy from two group companies Sterlite Power Grid Ventures Limited (SPGVL) and
Sterlite Power Transmission Limited (SPTL), which are involved in engineering, procurement and construction (EPC) of
power transmission projects and supply of power transmission conductors, respectively. The rating also favourably takes
note of the fact that the company has achieved financial closure for Rs. 1,417 crore term loans for the project, with a
provision of nine months moratorium period and a door-to-door tenure of 15.5 years. The company has awarded a fixed
price EPC contract to SPGVL, therefore, eliminating raw material price movement risk. ICRA also positively notes that the
project, being part of the Inter-State Transmission System (ISTS), benefits from an assured off-take of power as well as
stable cash inflows in the form of fixed monthly charges, provided the line availability is maintained above the normative
level of 98%. The project is also expected to benefit from the favourable payment security under the point of connection
(POC) mechanism during the operating period.
The rating is, however, constrained by implementation risks associated as the project’s construction work is in a very
nascent stage, and the company is currently involved in getting the required approvals. ICRA notes that the project is
already running behind scheduled by about four months because of a delay in acquisition of project SPV, given which the
achievement of project COD of December 2020 as per transmission service agreement (TSA) would be a challenge. While
the company has already discussed the need for timeline extension in COD till May 2021 in light of delayed handover of
the SPV with all the stakeholders including Central Electricity Regulatory Commission (CERC) and the discussion has been
formally recorded, the formal approval from the CERC is expected to be sought over the next few months. Nonetheless,
the sanctioned loan documents from the consortium of lenders already factor in the extended project timelines with
June 2021 as the scheduled COD, providing necessary cushion with respect to project execution. Consequently, the
timely receipt of approval from CERC for revision in COD and the subsequent incorporation of the same in TSA remain
key rating monitorables. The ratings also factor in the risks related to delays in receiving approvals including, forest
approval and the right of way, which may impact the project execution, leading to time and cost overrun. Additionally,
post commissioning, the company’s profitability would be exposed to fluctuations in operations and maintenance (O&M)
expenses, although the experience of SPGVL in power transmission business should ensure adequate resource allocation
and cost-efficient execution of the O&M activity. The rating also takes into account the exposure to interest rate risk due
to high share of debt funding, and any upward movement in the interest rate may impact its financial risk profile.
1The stable outlook reflects ICRA’s expectation that the project would progress as per the company’s expected timelines
on the back of established track record of the Sterlite group in execution of power transmission projects.
Key rating drivers and their description
Credit strengths
Established track record of Sterlite Group in implementation and operation of power transmission projects – The
Group is one of the major private players in power transmission sector in India and the project will benefit from the
established track record of the group.
Synergy with other group companies; fixed-price EPC contracts – The company enjoys synergy with group companies,
which are involved in EPC of power transmission projects and supply of power transmission conductors. The experience
of the group companies will help in timely execution of the project. Fixed-price EPC contracts with SPGVL also helps the
company to substantially offset an exposure to adverse raw material price movements.
Financial closure for debt funding – The company has achieved financial closure for bank loans of Rs. 1417 crore, which
has a door-to-door tenure of 15.5 years, including a moratorium of nine months post scheduled commercial operation
date (SCOD). Further, the promoters have already infused Rs 153 crore as on March 31, 2020, out of their total
contribution of Rs 607 crore in the project cost.
Assured off-take under long-term TSA; strong payment security – The company, being part of the Inter-State
Transmission System, will enjoy assured off-take of power as well as stable cash inflows in the form of annuity-based
fixed monthly charges, provided the line availability is maintained above 98%. The project will also benefit from
diversified counterparty risk and favourable payment security under the point of connection (POC) mechanism once
commissioned. Under the POC mechanism, the central transmission utility (CTU) i.e. Power Grid Corporation of India
Limited (PGCIL) collects monthly transmission charges from ISTS customers, which are distributed to ISTS licensees from
the centrally collected pool.
Credit challenges
Implementation risks associated with typical power transmission project – The project is currently in initial stages of
implementation, wherein less than 1% of the construction work is completed, which exposes it to significant execution
risks. Further, the project is already running behind scheduled by about four months because of a delay in acquisition of
project SPV, given which the achievement of project COD of December 2020 as per transmission service agreement (TSA)
would be a challenge. While the company has already discussed the need for timeline extension in COD till May 2021 in
light of delayed handover of the SPV with all the stakeholders including Central Electricity Regulatory Commission (CERC)
and the discussion has been formally recorded, the formal approval from the CERC is expected to be sought over the
next few months. Nonetheless, the sanctioned loan documents from the consortium of lenders already factor in the
extended project timelines with June 2021 as the scheduled COD, providing necessary cushion with respect to project
execution. Consequently, the timely receipt of approval from CERC for revision in COD and the subsequent incorporation
of the same in TSA remain key rating monitorables.
2Regulatory approval related risks – The project will require forest approvals, right of way and other various statutory
approvals during the implementation phase. Though, the company has already filed for all the approvals and clearances,
any delays in receipt of the same would negatively impact the project timelines as well as the project cost.
Moderate operations and maintenance risk – Post commissioning, the company’s profitability would remain exposed to
variations in O&M expenses. However, the experience of SPGVL in power transmission business should ensure adequate
resource allocation and cost-efficient execution of the O&M activity.
Interest rate risk and high gearing level – The project is being funded by debt-to-equity funding mix of 2.33:1. Further, it
remains exposed to interest rate risk, given the competitively-bid tariff transmission revenue post commissioning.
Liquidity position: Adequate
The liquidity position of the company remains adequate given that the financial closure for term loans is in place and
repayments are scheduled to commence in March 2022. Further, the promoters have already infused Rs 153 crore as on
March 31, 2020 out of their total contribution of Rs 607 crore in the project cost.
Rating sensitivities
Positive triggers – ICRA could upgrade LVTPL’s rating if the company timely completes the project without any major
time and cost overruns and is able to stabilise the operations post commencement.
Negative triggers – Negative pressure on the rating could emerge in case of any significant delays in project
implementation, or sizeable cost overrun. Any delays in timely infusion of promoter funds (equity or subordinated
unsecured debt) would also be a negative trigger.
Analytical approach
Analytical Approach Comments
Corporate Credit Rating Methodology
Applicable Rating Methodologies
Rating Methodology for Power Transmission Companies
The rating assigned to the company factors in the high likelihood of its parent,
Parent/Group Support SPGVL, extending financial support to it because of close business links between
the entities
Consolidation/Standalone Standalone
About the company
LVTPL was incorporated in 2019 as a special purpose vehicle for establishing 329 km of 765 kV D/C transmission line from
Lakadia to Vadodara. The project also involves installation of 300 MVAr switchable line rectors and two 765 kV bays at
Lakadia and Vadodara substations in Gujarat. LVTPL was transferred to Sterlite Grid 18 Limited (SGL18), which is a
subsidiary of SPGVL, after the it was awarded the project. The project is being implemented on a Build, Own, Operate
and Maintain (BOOM) basis and has a transmission service agreement (TSA) with long-term transmission customers for
35 years.
3Key financial indicators (audited)
FY2018 FY2019
Operating Income (Rs. crore) NA NA
PAT (Rs. crore) NA NA
OPBDIT/OI (%) NA NA
RoCE (%) NA NA
Total Debt/TNW (times)* NA NA
Total Debt/OPBDIT (times)* NA NA
Interest Coverage (times) NA NA
Status of non-cooperation with previous CRA: Not applicable
Any other information: None
Rating history for last three years:
Chronology of Rating History for the
Current Rating (FY2021)
Past 3 Years
Date &
Instrument Amount Amount Date & Rating in
Date & Rating Rating in
Type Rated Outstanding^ FY2020
FY2019
(Rs. crore) (Rs. crore)
May 04, 2020
1 Term loan Long 1417 185 [ICRA]BBB- - -
Term (Stable)
2 Non-fund Short (710) [ICRA]BBB- - -
Based-Letter Term (Stable)/
of Credit* [ICRA]A3
*Sublimit of term loan facility
^ Outstanding as on March 31, 2020
Complexity level of the rated instrument:
ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The
classification of instruments according to their complexity levels is available on the website www.icra.in
4Annexure-1: Instrument Details
Instrument Date of Coupon Maturity Amount Rated Current Rating
ISIN No
Name Issuance Rate Date (Rs. crore) and Outlook
Term loan [ICRA]BBB-
NA 28-Feb-20 11.5% 31-Mar-35 1417.00
(Stable)
Non-fund Based- [ICRA]BBB-
NA 28-Feb-20 - - (710.00)
Letter of Credit* (Stable)/ [ICRA]A3
*Sublimit of term loan facility
Source: LVTPL
Annexure-2: List of entities considered for consolidated analysis: Not applicable
5ANALYST CONTACTS
Sabyasachi Majumdar Girishkumar Kadam
+91 124 4545304 +91 22 6114 3441
sabyasachi@icraindia.com girishkumar@icraindia.com
Pooja Goyal Tushar Bharambe
+91 22 6169 3349 +91 22 6169 347
pooja.goyal@icraindia.com tushar.bharambe@icraindia.com
RELATIONSHIP CONTACT
L Shiva Kumar
+91 22 6114 3406
shivakumar@icraindia.com
MEDIA AND PUBLIC RELATIONS CONTACT
Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com
Helpline for business queries:
+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)
info@icraindia.com
About ICRA Limited:
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For more information, visit www.icra.in
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