World Class Portfolio Earns AA Credit Rating for Amplus Solar. Credit ratings are crucial yardsticks to ascertain overall financial placement of an entity, be it a corporate, a financial institution or even a country. So much so that in 1995, after Moody’s (one of the “Big Three”) downgraded credit ratings for Canada and Mexico, three-time Pulitzer prize winner Thomas Friedman popularly said that U.S.A., a superpower, can destroy a country by leveling it with bombs while Moody’s can destroy a country by downgrading its bonds.
Fast forward to today, a global pandemic has pulled down any conventional notion known to humankind. In such an uncertain world, credit ratings are holy grail for lenders and investors. A well rated corporate enjoys favorable access to funds and assures safety of the money to lenders and investors alike.
Fact: Below table mentions credit rating scale from AAA (highest quality) to D (in default)
|AA+, AA, AA-||Investment||High Quality|
|A+, A, A-||Investment||Strong|
|BBB+, BBB, BBB-||Investment||Medium|
|BB+, BB, BB-, B+, B, B-||Junk||Speculative|
All Amplus entities for which ratings are available, are rated at AA- or AA. Considering that renewables is essentially a non-conventional space, securing AA ratings is a momentous achievement for Amplus Solar.
Considering the significance of good credit rating, it is imperative to ask what it does takes to build a well rated entity.
Evaluation of credit ratings involves a holistic look at the financial and operational capability of a company, its long-term vision and its day-to-day operations which propel it in that direction.
First things first, Customers. Credit-worthy customers have better payment track record, and company should develop a meticulous framework to select suitable clients.
Sector-wise diversification of client base insulates the company against industry-specific volatility. Similarly, geographical diversification safeguard against varying climatic and regional factors. Amplus Solar has acclaimed a clientele of pioneers from various industries and its projects are located across 24 Indian states/UTs.
Fact: Credit check done by Amplus involves rigorous financial performance of prospective customers. This is followed by sector-wise benchmarking, load analysis, vendor payment analysis and electricity payment analysis. Outcome from all these analyses is aggregated into a score from 0 to 10.
With right set of customers onboard, an airtight PPA impart long-term revenue visibility. Defined course of action in the wake of changes in law, unforeseen instances, disputes, breaches, and defaults; shields the developer against potential revenue losses.
The most tangible component for any project is perhaps seamless construction, followed by excellence in O&M of asset. A cohesive connection across cross-functional teams steers alignment of processes, thereby improving overall efficiency.
Fact: In-house initiatives by Amplus Solar design team, such as Shading Analysis, Optimum Tilt, Air Ventilation of Modules, Layout optimization vis-à-vis industry standard have resulted in higher generation and a better performance ratio.
Amplus has adopted hub-and-spoke model for O&M of its assets with O&M Centers situated PAN-India. Remote monitoring of plant bypass requirement of manning all project sites, resulting in effective management of many more sites by one engineer. Noteworthy detail is that 100% of Amplus projects are monitored on string level, in real-time and remotely to ensure minimum downtime.
Fact: Analytics team has developed a utility wherein user can furnish a latitude and longitude, and irradiation data recorded by Amplus’ plants in the vicinity can be fetched. This leads to lesser dependency on third-party solar irradiation data.
Apart from an effective management of operations, a consistent financial management is pivotal in maintaining creditworthiness.
Effective cost of debt is lower than shareholders’ equity since debt lenders are always paid out before shareholders, hence bear lower risk. A larger share of debt in overall funding mix decrease cost of capital and translates to higher returns. This however also increase volatility of company’s earnings and cash flows. Hence any corporate entity has to find a balance between investments’ returns and perceived risk.
Lenders also require terms favorable to their risk appetite, such as creation of cash reserves and assigning or mortgaging project assets. Law of diversifying risks is valid for raising debt as well. Lender’s portfolio of Amplus includes leading players like HDFC, PFC, SBI, NIIF, NABARD, L&T, Axis Bank, Tata Cleantech, Standard Chartered, HSBC and RBL.
Fact: Amplus Solar obtain long-term debt financing on re-imbursement basis. It means that the project is commissioned with shareholders’ funds or interim bridge funding. Once commissioned, long-term lender reimburses excess shareholders’ funds and interim bridge funding.
Support from shareholder is one of key factors in assessing credit ratings. A strong backing from ultimate parent underpins higher financial and operational competencies. Strong financials of parent company can assist in the event of adverse developments (such as break out global pandemic).
With a steady support from shareholder, balanced debt financing, excellence in operations and customer centric approach, Amplus continues to set benchmarks for the industry.
Senior Associate, Capital & Risk Management