Orix investment to support Greenko's credit profile, ratings intact

Singapore, September 22 : Greenko Energy Holdings' credit profile will benefit from lower-than-anticipated leverage and addition of multiple diversified renewable energy projects with strong operating records as part of ongoing investment by Japan's Orix Corporation, Fitch Ratings said on Tuesday.
The agency expects the overall impact of the investment to be positive. Greenko's rating remains the same as Fitch expects the improvement in credit profile to be modest.
Orix will acquire 16.4 per cent stake in Hyderabad-based Greenko on a fully diluted basis including a certain share allocation to founding shareholders pending approval.
About 10.7 per cent of the stake will be bought from the founding shareholders while the balance will be from primary issuance in lieu of 850 MW of Orix's portfolio of wind assets which will be injected into Greenko.
The founding shareholders will use part of the proceeds to convert their warrants and inject equity into the group. A portion of the cash will be deployed to reduce borrowings, according to management, which expects the transaction to be completed by end-2020.
Greenko's 'bb' standalone credit profile (SCP) is supported by consistent financial support and strategic appraisal from Singapore national wealth fund GIC which holds a majority stake in the group and five out of the 10 board seats.
GIC is not selling its shares as part of the ongoing transaction. The fund's stake will come down in percentage terms but it will remain the majority shareholder with about 57 per cent ownership on a fully diluted basis.
Fitch expects no change in GIC's involvement. "We expect Greenko to continue to avail itself of strong funding-market access and liquidity support owing to its strong shareholders," it said.
GIC is involved in the group's strategy such as investment plans and oversight of operations and continues to strengthen the company's risk-management practices.
Greenko has demonstrated a record of deleveraging at the portfolio level by retaining cash from its operating assets to reduce associated borrowings or buy more assets with little or zero additional debt.
GIC together with Greenko's other shareholder Abu Dhabi Investment Authority committed another 194 million dollars in February in line with Greenko's plan to increase its stake in its ongoing acquisition of a 1,200 MW hydro-power project, taking their total investment to 2.2 billion dollars.
Orix's 850 MW portfolio has a strong record with a historical average load factor of around 20 per cent, according to management. All of the assets have been operating for more than two years while about 72 per cent of capacity has been operating for more than five years.
The acquisition will lead to EBITDA accretion of Rs 750 crore on a full-year basis, resulting in a marginal improvement in Greenko's FY22 leverage estimate to 5.7x versus Fitch's previous forecast of 5.8x.
The new portfolio is contracted primarily with state-owned distribution companies with only one 44 MW project signed up directly with commercial and industrial customers. However, the assets are very well diversified across seven states.
Only two out of a total 34 assets -- amounting to a capacity of 81.6 MW -- are contracted with state-owned power distribution utilities in Andhra Pradesh. Around 28 per cent of capacity is contracted with Gujarat while Rajasthan and Madhya Pradesh make up 18 per cent and 15 per cent respectively.