July 06, 2017

Lalitpur Power Generation Company Ltd

Summary of rated instruments

Instruments* Amount Rated Rating Action

(Rs. Crore)
Term Loans 13932 [ICRA]BB-(Negative)
(Revised from [ICRA]BBB-(Negative))
Cash Credit 2167# [ICRA]BB-(Negative)
(Revised from [ICRA]BBB-(Negative))
Non-fund Based Limits 1654 [ICRA]BB-(Negative)
(Revised from [ICRA]BBB-(Negative))
*Instrument details are provided in Annexure-1
#includes Rs. 167 crore of non-fund based limits

Rating action
ICRA has revised the long-term rating to [ICRA]BB- (pronounced ICRA double B minus)1 from
[ICRA]BBB- (pronounced ICRA triple B minus) on the Rs. 17,753-crore2 bank lines of Lalitpur Power
Generation Company Limited (LPGCL). The outlook on the long-term rating is Negative.

Rationale

The rating revision takes into account the liquidity pressures faced by the company as the full tariff for its
1980 MW thermal power plant in Lalitpur, Uttar Pradesh is yet to be approved by the regulator i.e. Uttar
Pradesh Electricity Regulatory Commission (UPERC). Further, there is a lack of clarity about when the
tariffs will be finalised. To meet the intermittent cash flow mismatch, LPGCL has approached the
consortium of lenders to refinance the debt under the 5/25 flexible restructuring scheme, which is under
review.

The rating continues to factor in the significant time and cost overrun (mainly due to an increase in the
IDC component of the project as the capital cost has increased from Rs. 12,112 crore or Rs. 6.12 crore per
MW at the time of inception to Rs. 18575 crore or Rs. 9.38 crore per MW. The aforesaid cost increase
necessitates substantial revision in tariffs to ensure full recovery. However, the approved (provisional)
tariffs are based on a lower capital cost estimate (Rs. 12,868 crore). This apart, ICRA continues to take
note of the proposed disallowances of certain cost elements by the UPERC, pending finalisation of a firm
long-term fuel supply arrangement (FSA). The project is also exposed to fuel supply and pricing risks
given that a long-term FSA is yet to be signed.

1 For complete rating scale and definitions, please refer to ICRA's website www.icra.in or other ICRA Rating
Publications
2 100 lakh = 1 crore = 10 million
ICRA, however, factors in the commencement of operations of all three units of the project within the
stipulated timelines, the presence of a long-term PPA (which mitigates offtake risks), and the cost-plus
nature of the tariff that protects the project returns from variability in fuel costs (subject to acceptance of
the capital cost estimates by the UPERC).

The outlook on the rating is Negative and the timely completion of the proposed restructuring under the
5/25 scheme will be a key rating sensitivity

Key rating drivers

Credit strengths
● Experienced promoter with a long track record in sugar, cogen and power business
● No execution risk owing to the successful commissioning of all three units of the project within the
stipulated timelines, as per the PPA
● Presence of a long-term PPA with UPPCL, which assures offtake of the entire power of the 1980 MW
thermal power plant; cost-plus nature of the PPA provides further comfort
● Availability of transmission infrastructure owing to the commissioning of a 765 kv transmission line
in October 2016

Credit weaknesses
● Constrained liquidity due to the commencement of project debt repayment and inadequacy of
approved tariffs at present
● Significant repayments over the next few years; liquidity may be constrained by any delay in the
approval of an increased provisional tariff; however, the company has approached lenders to
refinance debt under the 5/25 flexible restructuring scheme
● Substantial time and cost overrun has increased the overall cost to Rs. 18,575 crore as against Rs.
12,112 crore estimated at the time of setting up the project
● The project is also exposed to fuel supply and pricing risks given the absence of a long-term FSA
● Counterparty credit risks on account of exposure to Uttar Pradesh-based discom (UPPCL), which has
poor financial health; however, escrow arrangement and payment security mechanisms in the PPA
provides a monthly unconditional, revolving and irrevocable LC equivalent to 1.1 times the estimated
average monthly billing for a period of 12 months
● Proposed disallowances of certain cost elements by UPERC, pending the finalisation of a firm long-
term FSA

Description of key rating drivers

The company (an SPV) operates a 1980 MW (3*660 MW) coal-based thermal power plant in Lalitpur,
Uttar Pradesh. The project was awarded through a Memorandum of Understanding (MoU) to Bajaj
Hindustan Limited (a part of Shishir-Bajaj Group) by the Government of Uttar Pradesh (GoUP) in
December 2010. The group has a long track record in sugar, cogeneration and power business. Notably,
the long-term PPA signed with the UPPCL for the sale of 90% of the project’s installed capacity on a
cost-plus basis was subsequently increased to 100%. The cost-plus nature of the PPA ensures recovery of
capital cost incurred in the project, subject to approval of capital cost by the UPERC. The project,
however, is not subject to variation in fuel price in the cost-plus PPA. All the three units of the projects
have been commissioned as per the timelines of the PPA. Moreover, the transmission line associated with
the project has been commissioned by the Power Grid Corporation of India Limited.

However, the project is witnessing liquidity pressures at present as the scheduled repayments have
commenced but the full tariff is yet to be approved. Therefore, the company has approached the
consortium of lenders to refinance the debt under the 5/25 flexible restructuring scheme, which is under
review by the consortium of lenders. The applicable tariff for the project is expected to be revised
upwards, but it may take some time before a final tariff for the project is approved by the UPERC.
Meanwhile, the cash in flows are expected to remain at modest levels.

Further, it may be noted that the project has witnessed substantial time and cost overrun with the overall
project cost increasing to Rs. 18,575 crore as against Rs. 12,112 crore estimated at the time of setting up
the project. Hence it will be critical for the company to secure pass-through of the entire project cost from
the UPERC during the tariff determination process.

ICRA also notes that the FSA for the project is yet to be signed, which subjects it to fuel supply and price
risks. Nonetheless, ICRA’s rating derives some comfort from the fact that the company has been able to
source coal from e-auction at rates that are not significantly higher than the price of linkage coal, largely
due to improved domestic coal availability with CIL. Moreover, the cost-plus nature of the PPA allows
pass-through of the variation in fuel price to consumers.

ICRA also notes the project’s exposure to the UPPCL, which has relatively weak financial profile.
However, the PPA provides for a monthly unconditional, revolving and irrevocable LC for a period of 12
months and equivalent to 1.1 times the estimated average monthly billing. Additionally, the presence of
escrow arrangement for collection of receivables provides payment security to the company.

Analytical approach
For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria

Corporate Credit Ratings: A Note on Methodology
Rating Methodology for Thermal Power Producers

About the company

The company is an SPV promoted by the Shishir Bajaj Group of Companies for the development of a
1980 (3X660) thermal power project based on super critical technology at Lalitpur (Uttar Pradesh). The
project was awarded to the group by the GoUP after the Expression of Interest (EoI) call and the
subsequent bidding process. The revised cost of the project is Rs 18,575 crore. The company achieved
project COD in December 2016. Notably, COD for the first unit of the plant was attained in December
2015, for the second unit was attained in October 2016 and for the third unit was attained in December
2016.

Status of non-cooperation with previous CRA: Not applicable.

Any other information: Not applicable

Rating history for last three years

Table

Name of Current Rating Chronology of Rating History for the past 3 years
Instrument
S. Type Rated Month - Month - year & rating in
Month - Month -
No. amount year & FY2017 year & year &
(Rs. rating Rating in Rating in
crore) FY2016 FY2015
Term July 2017 Jan 2017 May 2016 Oct 2015 Aug 2014
Long
1 Loans/ [ICRA]BB- [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- [ICRA]BBB-
Term 13932
Cash Credit (Negative) (Negative) (Stable) (Stable) (Stable)
Non-fund Long
[ICRA]BB- [ICRA]BBB- [ICRA]BBB- [ICRA]BBB- [ICRA]BBB-
2 Based Term 1654
(Negative) (Negative) (Stable) (Stable) (Stable)
Limits
Long [ICRA]BB- [ICRA]BBB-
3 Cash Credit 2167*
Term (Negative) (Negative)
Long [ICRA]BBB-
4 Unallocated
Term (Stable)

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
Annexure-1
Instrument Details
Name of the Date of Coupon Maturity Size of the issue Current Rating and
instrument issuance rate Date (Rs. Cr) Outlook
24- Aug - [ICRA]BB-
Term Loans - 30-Jun-2030 13932
2011 (Negative)
[ICRA]BB-
Cash Credit* - - - 2167
(Negative)
Non Fund Based [ICRA]BB-
- - - 1654
Limits (Negative)
Source: LPGCL
*includes Rs. 167 crore non fund based limits
 Contact Details
Analyst Contacts
Sabyasachi Majumdar Jatin Arya
+91 124 4545304 +91 124 4545313
sabyasachi@icraindia.com jatin.arya@icraindia.com

Avneet Kaur
+91 124 4545319
avneetk@icraindia.com

Name and Contact Details of Relationship Contacts:

L Shivakumar
+91 22 6179 6393
shivakumar@icraindia.com

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