S&P upgrades Greenko Energy to 'BB-' on improving business position

Greenko Energy Holdings' stabilising operating performance with greater resource diversity and manageable execution risk for pumped storage projects will strengthen its business position, S&P said

Global rating agency Standard and Poor's (S&P) has upgraded its long-term issuer credit rating on India-based Greenko Energy Holdings from "B+" to "BB-" on improving business position. The outlook is stable.

Greenko Energy Holdings' stabilising operating performance with greater resource diversity and manageable execution risk for pumped storage projects will strengthen its business position, the rating agency said in a statement.

The stable outlook reflects the view that Greenko will improve its operating performance to about P90 (meeting expected power generation levels at least 90 per cent of the time), backed by a larger and diversified portfolio of assets.

The India-based renewable energy company faces elevated leverage due to high capital spending, but strong equity commitment from sponsors for growth capital and some improvement in its receivables position would support financial ratios over the next 12-18 months.

The company's differentiated business position with significant resource diversity, stabilising operating performance and a strategy of fee-based pumped storage solutions will collectively result in more stable and resilient cash flows.

Stabilising wind performance and an increasingly diversified portfolio will improve Greenko's overall portfolio performance. The agency expects above P90 performance of 873 megawatts (MW) from its Orix Corp wind assets and a recovery in industry-wide wind performance in the fiscal year ending March 31, 2023. This will boost Greenko's overall wind performance closer to P90. Historically, Greenko's wind generation has been patchy with large variability, it said.

Referring to receivables, S&P said that Greenko's receivables position would temporarily stabilise over the next 12 months with collection of overdues. The government's Late Payment Surcharge scheme is likely to provide temporary relief to Greenko, reducing working capital drag.

"We forecast neutral working capital movement in fiscal 2023 and working capital outflow of $80 million in fiscal 2024. This is a significant improvement from earlier estimates of negative $150 million annual working capital requirements," the agency said.

However, the surcharge scheme does not fully resolve the structural weaknesses at state distribution companies and Greenko will remain exposed to the risk of the weak counterparties and further payment delays, the agency pointed out.