(The following statement was released by the rating agency) Fitch Ratings-Singapore-24 July 2020: Fitch Ratings has upgraded Greenko Energy Holdings’ Long-Term Foreign-Currency Issuer Default Rating to ‘BB’, from ‘BB-‘, with a Stable Outlook. The agency has also upgraded the ratings of Greenko Solar (Mauritius) Limited’s (GSM) USD500 million 5.55% senior notes due 2025 and USD535 million 5.95% senior notes due 2026 as well as Greenko Investment Company’s (GIL) USD500 million 4.875% senior notes due 2023 to ‘BB’, from ‘BB-‘. At the same time, the agency has affirmed Greenko Dutch B.V’s (GBV) USD350 million 4.875% senior notes due 2022 and USD650 million 5.25% senior notes due 2024 at ‘BB’. GSM, GIL and GBV are subsidiaries of Greenko. The restricted groups (RG) for the bonds issued by GSM, GIL and GBV have accumulated significant cash from operation. Greenko has committed to not take dividends from the RGs, but has accessed RG-level cash via transfer of debt-free operational assets, which have limited restrictions under the RG bond covenants. This has led us to believe that taking a consolidated view of the group will more accurately reflect the risk profiles of the holding company and its RG issuers; GBV, GIL and GSM. Greenko plans to use the accumulated cash to cut debt at its operating entities, with new projects funded by shareholder equity. Our ‘bb’ assessment of Greenko’s consolidated group credit profile is underpinned by the business and financial profiles of Greenko’s entire portfolio of renewable power assets, as well as strong funding-market access and liquidity support owing to strong shareholders; GIC, Singapore’s sovereign wealth fund, and Abu Dhabi Investment Authority (ADIA). GIC, in particular, has provided consistent equity support for Greenko’s investments. The dollar bonds are guaranteed by Greenko. The issuers invest in the Indian-rupee debt issued by the operating subsidiaries, a process through which the proceeds of the dollar notes are on lent to the operating subsidiaries. The issuers are only secured lenders to the RGs and do not hold equity in the operating subsidiaries, which are held by Greenko. The bond ratings reflect Greenko’s ‘bb’ Standalone Credit Profile (SCP) and at least average recovery prospects. The average recovery on the US-dollar bonds indirectly benefits from the rupee-denominated notes’ first charge on most of the assets of the RGs. Greenko’s SCP remains steady, despite our expectation of lower power demand amid the prevailing coronavirus pandemic, which is likely to increase curtailment risk and extend receivable days for renewable energy producers in the financial year ending March 2021 (FY21). We expect Greenko’s financial profile to improve in FY22, based on a gradual recovery in India’s economic growth. The central government’s liquidity support package should also improve the receivable position. The full acquisition of a 1,200MW hydro-power project will also support the group’s credit metrics from FY22. Key Rating Drivers Consolidated Credit Assessment: Greenko’s RGs benefit from covenanted restrictions on cash out flow and additional debt incurrence. However, Greenko’s access to the RGs’ cash is not strictly limited. There have been multiple instances in which Greenko has injected assets into GIL and GBV for cash consideration. Greenko added two wind projects, totalling 56MW, to GIL and two assets to GBV, totalling of 60MW, in FY20. Continuing Support from GIC: Greenko’s SCP is supported by consistent financial support and strategic appraisal from GIC, which owns 64.9% of the company and holds five out of 10 board seats. GIC, as well as ADIA, committed another USD194 million in February this year, in line with Greenko’s plan to increase its stake in its ongoing acquisition of the hydro project, taking their total investments to USD2.2 billion. This follows an additional USD824 million in May 2019 to support Greenko’s acquisitions and expansion into renewable-energy storage. GIC is also involved in the group’s strategy, including 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 to no additional debt. Structural Subordination from RGs: Greenko created the three RGs to issue US-dollar notes, with capacity of 558MW at GIL, 1,089MW at GSM and 1,151MW at GBV. This was carved out from its current total operational capacity of 4.1GW. The company has also raised bonds in the domestic market, creating another RG with 500MW. The structural features created through these notes’ indentures restrict the outflow and use of cash generated from the assets, which are highly free-cash generative, to a degree. Management intends to retain more cash at the RG level, but Greenko has the ability, if needed, to tap the cash within the indenture conditions. Greenko has also raised sufficient equity ahead of substantial investments, leading to a moderate level of debt at the holding-company level. Its 2.3GW portfolio of diversified unrestricted assets – including projects that are due to come online or be acquired in FY21 – further enhances Greenko’s financial flexibility. Adequately Equity-Funded Storage Projects: Greenko plans to build integrated renewable-energy projects, combining pumped storage with solar and wind projects, to fuel growth. The company has two such projects in its pipeline, with a combined capacity of 2.4GW, entailing an investment outlay of about USD2 billion. We believe associated execution risks are manageable in light of moderate technological intensity against management’s strong expertise and demonstrated record in developing renewable assets in general and hydro projects in particular. Leverage to Stay High: The group’s consolidated leverage will remain at around 6.0x. The construction of the storage projects will start by the end of this year but we expect EBITDA accretion only three to four years down the line. However, the projects are adequately equity financed by sponsors with no debt-servicing requirements during the construction phase. At the same time, the group’s financial profile, excluding the storage projects, exhibits meaningful deleveraging capacity. We expect Greenko’s leverage, defined by net debt/EBITDA, to drop below 5.0x in FY24 (FY20E: 6.5x), before factoring in storage-project investment, and for EBTIDA net interest cover to improve to 2.0x by FY24 (FY20E: 1.5x). Seasoned, Diversified Portfolio: About 95% of Greenko’s 5.7GW capacity is operational, with a weighted-average age of about four years. The power projects’ diversity by type – wind (41%), solar (27%) and hydro (32%) – and geography mitigates risks from adverse climatic conditions. The portfolio is spread across 13 Indian states. Off-taker mix is also diversified across state utilities (64%), sovereign-owned entities (16%) and direct industrial and commercial customers (6%). Greenko’s solar and hydro portfolio produced electricity in line with our expectations in FY20, although wind-based generation suffered due to curtailment from the state of Andhra Pradesh. Weak Counterparty Profiles: The weak credit profiles of Greenko’s key customers, state utilities, are a rating constraint. The group’s receivable days increased to an average of 230 in FY20, from 178 days in FY19. The group also has an element of concentration in its exposure to state utilities, with Andhra Pradesh accounting for 20% of offtake by capacity. Delays in receipts from state utilities exert working-capital pressure. We expect most of Greenko’s storage capacity to be contracted with sovereign-owned entities, which should significantly reduce the company’s counterparty risk. Long Term Contracts, Price Certainty: The majority of Greenko’s assets benefit from long-term power purchase agreements (PPA), which offer tariff visibility. The PPAs have an average remaining period of about 24 years, 12 years, 22 years and 15 years for Greenko’s unrestricted group, GIL , GSM and GBV, respectively. Most of the electricity generated from the 1,200MW hydro power project is sold in the merchant market, which does not affect Greenko’s credit profile given the lower average cost of electricity generation from the project. However, we expect management to sign long-term agreements once it fully owns the asset. Foreign-Exchange Risk Largely Hedged: Foreign-exchange risk arises as the earnings of Greenko’s assets are in Indian rupees, while the notes are denominated in US dollars. The group’s policy requires Greenko to substantially hedge the principal of its US-dollar notes over the tenor of the bonds. The coupons are usually hedged till the no call period and are rolled over thereafter, based on market dynamics. Derivation Summary ReNew RG II (senior secured rating: BB) is a RG with total capacity of 636MW across 11 renewable projects in India and no construction risk. ReNew RG II’s fuel mix is better than that of Greenko, with 56% exposure to solar and the balance to wind. ReNew RG II has a tighter transaction structure, with no additional indebtedness allowed, a six-month interest service reserve account and a covenanted payment of interest on initial top-up to the parent at 8% a year. ReNew RG II’s average credit metrics over the life of its bond are also slightly better. Greenko’s credit assessment at the same level benefits from its solid financial access. Greenko’s shareholders, in addition to contributing equity, have introduced stronger risk-management practices, including a commitment to deleveraging. ReNew Power Private Limited (BB-/Stable) has stronger counterparty exposure, with about 43% of capacity contracted with sovereign-owned entities. The group’s fuel mix is also better, with almost half of its capacity coming from solar resources. However, Greenko intends to contract its storage capacity mainly with sovereign-owned entities, which should address its higher counterparty and resource risks in the medium term. Greenko’s better credit assessment is supported by its stronger financial access, which enables the company to rely on fresh equity for investments and acquisitions, while utilising cash generated from operations to deleverage. Greenko’s focus on pumped storage projects, which have a long gestation period of about three years, will increase financial leverage in the medium term. Nevertheless, the projects are adequately funded, with an equity commitment from Greenko’s shareholders in place. Concord New Energy Group Limited (CNE, BB-/Negative) has an attributable wind capacity of 2,277MW across multiple projects in China. CNE’s feed-in tariffs are stable and its counterparty risk is significantly lower, as its revenue stream is mostly reliant on State Grid Corporation of China (A+/Stable) and China’s Renewable Energy Subsidy Fund. In comparison, Greenko has a larger size – allowing for diversity and granularity across multiple projects – and a better fuel mix. Greenko has higher counterparty risk, with exposure to weak Indian state-owned distribution companies, but CNE also suffers from delayed subsidy collections. CNE’s financial profile is comparable with that of Greenko, as its higher interest cover compensates for Greenko’s higher leverage. CNE’s funding relies on asset sales, while Greenko’s stronger financial access somewhat compensates for its structural subordination to RGs. Combined, Greenko’s underlying SCP is at least a notch better than that of CNE, in our view. The Negative Outlook on CNE is based on the uncertain timing and success of the refinancing of its US-dollar bonds under the currently volatile market condition and slower deleveraging that we expected in 2019. Key Assumptions Fitch’s Key Assumptions Within Our Rating Case for the Issuer – Construction of storage projects to begin in 4QFY21, with the first project commencing operation in FY25. Total outlay of INR70 billion for each project, with EBITDA accretion of around INR11 billion. For rest of the portfolio: – 300MW of under-construction capacity to commence operation in FY21 – Plant load factors to decline by 2pp in FY21 due to lower demand amid the pandemic. Average load factors of 34% from FY22, with the full acquisition of the 1,200MW hydro power project – Tariffs in line with PPAs – EBITDA margin to stay at around 85% over next four years, before declining to around 58% as storage projects commence operations. – Receivable days to increase to about 300 in FY21, before gradually improving to about 150 by FY23. – Cash accruals from operations to be used to deleverage, with growth financed from external funds supported by adequate equity. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: – A sustained improvement in leverage, as measured by net debt/EBITDA, to below 4.5x, provided there are no adverse changes to the shareholding of Greenko or an increase in risk appetite. Factors that could, individually or collectively, lead to negative rating action/downgrade: – Any shareholder changes that adversely affect the company’s risk profile, including its liquidity and refinancing, risk-management policies or growth risk appetite – Significant adverse developments related to storage projects, which may include rising construction risk or changes diluting the economics of the investments – Prolonged deterioration of the receivables position – Operating EBITDA/net interest expense at below 1.8x for a sustained period – Failure to adequately mitigate foreign-exchange risk Best/Worst Case Rating Scenario International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. Liquidity and Debt Structure Sufficient Liquidity: We expect Greenko’s readily available cash balance to be about INR38 billion at end-FY20. The majority of cash will be at the unrestricted group and GSM, estimated at INR18 billion and INR9 billion, respectively. This is against project-financed debt maturities of INR5 billion in FY21 (INR4 billion at Greenko and INR1 billion at GIL). The company further benefits from solid financial access supported by its strong shareholders. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. Public Ratings with Credit Linkage to other ratings US-dollar bonds issued by GSM, GIL and GBV are rated based on the consolidated profile of Greenko. ESG Considerations The highest level of ESG credit relevance, if present, is a score of 3. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity(ies), either due to their nature or to the way in which they are being managed by the entity(ies). For more information on Fitch’s ESG Relevance Scores, visit www.fitchratings.com/esg. Greenko Energy Holdings; Long Term Issuer Default Rating; Upgrade; BB; RO:Sta Greenko Investment Company —-senior unsecured; Long Term Rating; Upgrade; BB Greenko Solar (Mauritius) Limited —-senior unsecured; Long Term Rating; Upgrade; BB Greenko Dutch B.V —-senior unsecured; Long Term Rating; Affirmed; BB Contacts: Primary Rating Analyst Rachna Jain, Director +65 6796 7227 Fitch Ratings Singapore Pte Ltd. One Raffles Quay #22-11, South Tower Singapore 048583 Primary Rating Analyst Geetika Gupta, Analyst +65 6796 7088 Fitch Ratings Singapore Pte Ltd. One Raffles Quay #22-11, South Tower Singapore 048583 Secondary Rating Analyst Girish Madan, Director +65 6796 7211 Secondary Rating Analyst Rachna Jain, Director +65 6796 7227 Committee Chairperson Ying Wang, Managing Director +86 21 6898 7980 Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email: email@example.com Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: firstname.lastname@example.org Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 01 May 2020) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10120170) Corporates Notching and Recovery Ratings Criteria (pub. 14 Oct 2019) (including rating assumption sensitivity) (https://www.fitchratings.com/site/re/10090792) Country-Specific Treatment of Recovery Ratings Rating Criteria (pub. 27 Feb 2020) (https://www.fitchratings.com/site/re/10111386) Sector Navigators – Addendum to the Corporate Rating Criteria (pub. 26 Jun 2020) (https://www.fitchratings.com/site/re/10125796) Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). Corporate Monitoring & Forecasting Model (COMFORT Model), v7.9.0 (1 (https://www.fitchratings.com/site/re/973270)) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10130395) Solicitation Status (https://www.fitchratings.com/site/pr/10130395#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10130395#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10130395#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS (HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS). 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