According to reports, Fitch Ratings has downgraded India-based Sathyam Power Private Ltd.’s (SPPL) INR358.4m senior bank term debt to a National Long-Term ‘Fitch D(ind)’ rating from ‘Fitch B+(ind)’. The Outlook was previously Negative.
The downgrade reflects many instances of delays by SPPL in meeting its principal and interest obligations since May 2012 due to lack of adequate operating cash flows.
The company’s biomass-based thermal power project operated below expectations during June 2011-June 2012, as illustrated by an average plant load factor (PLF) of 36% against a breakeven PLF of 60%. This is largely due to technical problems with the boiler and a significant rise in fuel costs. Fitch notes that sponsor group companies injected additional equity of INR40.5m in FY12 into the project to support its cash flows, albeit not in time to meet debt service obligations as they fell due.
Fitch expects the economic viability of the project to improve in the near term. According to the terms of the 20-year power purchase agreement, the state-owned off-taker utility revised tariffs for biomass plants to INR5.33/unit in December 2011 assuming fuel costs of INR1,830/tonne.
Positive rating action may result from stabilisation of the plant performance and evidence that the project is able to generate the forecasted levels of cash flows resulting in timely debt servicing on a sustained basis.
SPPL operates a 10MW biomass-based power plant in the Merta district of Rajasthan. Commercial operations were commenced in April 2011, but the plant has been operating at sub-optimal PLF levels. The project is sponsored by Mr. Sanjay Bagrodia and Focal Energy.