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Fitch Ratings said on Friday that renewable projects in the APAC region are unaffected by the coronavirus.
The ratings agency referred to projects involving Adani Green Energy Ltd, Azure Power Solar Energy Private Ltd and Star Energy Geothermal. Adani Green has a BBB- rating with a stable outlook. Azure Power has a BB rating and Star Energy Geothermal, Indonesia’s largest geothermal power station, has a BB- rating.
Fitch pointed out that though the number of reported infections remains low in Indonesia and India, where these assets are located, the governments have undertaken severe steps to stop the spread of the virus. Indonesia has issued more stringent business restrictions and social distancing measures while India has just started a three-week nationwide lock-down. The slowdown in economic activity has weakened electricity demand, but these projects are shielded from adverse effects from the measures, it said.
Azure and Adani Green Energy are based in India and their plants are spread across the country. Further, both are also contracted to sell all their electricity output to offtakers, and they are protected by regulatory “must-run” status and enjoy priority dispatch.
Further, the plants are in isolated locations and less vulnerable to infections. “We do not currently see any significant challenge for these projects to continue operating,” it said. Fitch also believes these issuers have robust spare-part management to ensure adequate stocks and have the ability to reschedule planned maintenance if necessary. All issuers have taken preventive measures or activated business continuity plans,” Fitch said.
Near-term financing
Regarding near-term refinancing, Fitch noted that there are no near-term risks. Azure’s notes mature in 2024 while Adani Green has a 24 per cent balloon repayment which matures in 2030. A balloon loan is set up for a relatively short term, and only a portion of the loan’s principal balance is amortised over that period. The remaining balance is due as a final payment at the end of the term.
Star Energy Geothermal is free from refinancing risk as its notes are fully amortising. Fitch does not expect these projects’ debt servicing ability to be impaired by the pandemic. They are also unaffected by interest-rate volatility or currency swings because the coupon rates are fixed and currency risk is substantially hedged, noted Fitch. Debt features such as debt servicing reserves, maintenance reserves, and other structural enhancements also mitigate potential cash-flow volatility.
Fitch cautioned that although it does not foresee any immediate rating actions, downgrades in the ratings of their counterparties or their respective sovereign’s country ceilings could prompt rating action on the rated notes. Country Ceilings capture the risk of capital and/or exchange controls being imposed that would prevent or significantly impede the private sector’s ability to convert local currency into foreign currency and transfer the proceeds to non-resident creditors.
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