Fitch lowers outlook on ReNew Power rating to Stable on slower deleveraging

The firm's capex was expected to be below company's estimates given the continuing Covid-related challenges, including delays in signing new PPAs, the rating agency said

Rating agency Fitch has revised the outlook on India-based ReNew Power Private Ltd's Long-Term Issuer Default Rating from “positive” to “stable” on a slower pace of deleveraging for ReNew than expected earlier.

It affirmed the rating at 'BB-' as well as the ratings on ReNew's outstanding senior secured US dollar notes at 'BB-'.

The outlook revision reflects slower pace of deleveraging due to larger capex than forecast and a slower improvement in receivables. ReNew's capex was expected to be below the company's estimates given the continuing challenges from the Covid-19 pandemic, including delays in signing new power-purchase agreements (PPAs), Fitch said in a statement.

ReNew spent Rs 4,810 crore in the first half of the financial year ending March 2022 (1HFY22), up sharply from Rs 740 crore a year earlier. It was about 70 per cent of the agency's previous estimate of Rs 6,700 crore for the full year. The rapid rise in capex is likely to keep ReNew's net leverage, measured as net debt / EBITDA, over next 12-18 months above 4.8x, the level below which Fitch may consider positive rating action.

The agency has revised the forecast for capex to an average of Rs 87 billion in FY22 and FY23, which will push its estimate for ReNew's net leverage to around 5.5x by FYE23. This compared with the previous estimate of leverage of 4.8x and capex of Rs 6,000 crore.

Fitch expected ReNew to continue deleveraging from historical levels of about 6.9x (average of FY19 to FY21). But improvement to about 4.8x will be delayed to 12 to 18 months after FY23, subject to its investment plans and expectations of improvement in receivables, it said.

The increase in capex is within the company's expectations and driven by the signing of PPAs in 1HFY22 for projects that were awarded more than a year ago. ReNew's FY22 net leverage is also affected by pay-outs for its acquisition of 360 MW of solar and hydro assets during FY22, which should augment its operating cash-flows.