Change-in-law Payments Would Be a Rs4,000 Crore Booster for Solar Sector: Report
Recent commencement of change-in-law-payments by state power distribution companies (discoms) and Solar Energy Corp of India (SECI) for goods and services tax (GST) to solar power projects, comes as a shot in the arm for the sector with monetary benefits, says a research report. 
 
In a report, ratings agency CRISIL says, "Together with safeguard duty (SFD) reimbursements, which also qualify under ‘change in law’, the payments will lead to Rs4,000 crore cash inflow for the sector. This can restore project returns by as much as 220 basis points (bps) and is positive for credit quality."
 
Last year, CRISIL had said that the imposition of SFD on import of solar cells and modules had increased the implementation cost of about 5.4 giga watt (GW) projects by as much as 15% and compressed the returns of developers by 160 bps. Add to this the hike in GST levy on modules and balance of the plant, and returns reduced by a further 60 bps, it had said.
 
While Central Electricity Regulatory Commission (CERC) was quick to recognise the SFD imposition as a change-in-law event, uncertainty prevailed over the timeliness and mechanism of its reimbursements.
 
"Now, counterparties including SECI and discoms such as Maharashtra State Electricity Distribution Company Ltd (MahaDiscom) have started making payments towards GST reimbursements for their respective projects. To ensure returns don’t diminish because of delays in payment, the reimbursement is in the form of 13-year annuity and also factors in a carrying cost of 10.4% on a retrospective basis, in line with the CERC’s latest tariff orders," the ratings agency says.
 
According to Manish Gupta, senior director of CRISIL Ratings, these annuity flows are not conditional upon project performance and receipt of payments by central counterparties from the underlying discoms. "This lends more stability to these cash flows and supports the credit quality of these projects," he added.
 
The ratings agency feels that commencement of GST reimbursement would pave the way for similar disbursements towards SFD (75% of overall change in law payouts) where the payment mechanism is also established on similar lines and is awaiting submission and verification of cost documents by developers. This, it says, strengthens the sectors’ outlook as, apart from claw-back of returns, it yet again demonstrates upholding of contractual terms in line with power purchase agreement.
 
These developments come on the back of continued regulatory support, such as the ministry of new and renewable energy’s memorandum upholding the ‘must-run’ status of renewable energy amid the COVID-19 pandemic, and extension of completion timelines for under-construction projects by the authorities in view of the lockdown. 
 
Earlier SECI also abolished the tariff caps and continued to expand its presence as aggregator, protecting developers from being directly exposed to weak state discoms.
 
Ankit Hakhu, director of CRISIL Ratings says, “Demonstration of such regulatory support has helped lower the two critical risks the renewables sector faces – weak state counterparties and contractual uncertainties -- and has been pivotal in upholding the sector’s resilience during the pandemic. This will need to continue for a stable credit outlook for renewables sector to be maintained.”
 
After 30 June 2018, SFD was implemented on import of solar cells and modules from China, Malaysia and Indonesia. Earlier, from July 2017, GST was levied on solar cells and modules at 5%. However, solar projects which were awarded or auctioned prior to these dates were not supposed to pay these duties and taxes as these did not exist at the time of their bidding. These additional payments were classified under change in law from time of bidding and made eligible for reimbursement.
 
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    stephenrajs

    2 months ago

    Accurate to the point unbiased no-prejudice and honest analysis of what went wrong

    Adani, Sunteck Realty Show Interest in Acquiring HDIL
    Adani Properties, Sunteck Realty and Suraksha Asset Reconstruction Ltd are among the companies which have submitted expressions of interest (EoI) to acquire the insolvent Housing Development and Infrastructure Limited (HDIL).
     
    In a regulatory filing on Tuesday, HDIL said that bids of the three companies have been found eligible, while that of three other interested parties -- International Asset Reconstruction Company Pvt Ltd, NS Software and Harsha Vardhan Reddy were found to be ineligible.
     
    "The Resolution Professional has received 6 (Six) EOI from interested parties," it said.
     
    The invitation for EOI was first published in February and subsequently revised five times till July. Submission of EOI was closed on 31st July.
     
    Any objection to inclusion or exclusion of a prospective resolution applicant in the provisional list may be made with supporting documents within five days from the date of issue of the provisional list, by 8th August.
     
    "After considering the objections, if any, received by the Resolution Professional, final list of Prospective Resolution Applicants (PRAs) will be published. The final list will also be uploaded on the website of the HDIL," it said.
     
    HDIL is under corporate insolvency resolution process pursuant to the provisions of the Insolvency and Bankruptcy Code, 2016. Its affairs, business and assets are being managed by the resolution professional, Abhay N Manudhane appointed by National Company Law Tribunal, Mumbai Bench.
     
    Shares of HDIL on the BSE surged on the development. Currently, its shares on the BSE are at Rs3.16, higher by 4.98% from its previous close.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    bala.mathur

    2 months ago

    The 64 million $ question is, will the PMC Bank depositors get their money back?

    Slack Demand to Crimp Garment Maker Revenues by 25-30%: Report
    A sharp fall in both domestic and exports demand because of the corona virus (Covid-19) pandemic, lower profitability, and elongation of working capital cycle are expected to impair the credit profiles of readymade garment (RMG) makers this fiscal, says a research report.
     
    In the note, ratings agency CRISIL says, "The impact will be felt more by exporters owing to higher revenue de-growth and stretched receivables, an analysis of over 180 CRISIL-rated RMG manufacturers (representing revenue of around Rs40,000 crore) shows." 
     
    "The prolonged lockdown and lower discretionary spending are expected to reduce the revenue of RMG makers by 25-30% this fiscal. For exporters, the fall will be more because of tepid discretionary spending in the US and European Union (EU) accounting for about 60% of India's RMG exports," it added.
     
    According to Gautam Shahi, director of CRISIL Ratings over the past five fiscals, revenue growth of RMG makers was supported by domestic demand even as exports were muted. This fiscal, he says, "with domestic demand also falling significantly, revenues are expected to be materially impacted. Consequently, their operating margins are expected to contract 250-300 basis points (bps) to 7-7.5% for the sample set, despite softer cotton prices, and cost-reduction initiatives." 
     
    In addition, CRISIL says, RMG makers working capital cycle has elongated because of higher inventory and stretched receivables. "Last fiscal ended with 20-25% higher inventory as the Covid-19 pandemic took hold and lockdowns began in late March. With demand depressed in the first half of this fiscal, inventories will remain high. Adding to the woes of exporters will be weakening credit profiles of some large global brick and mortal retailers, which will stretch receivables."
     
    Kiran Kavala, associate director, CRISIL Ratings says, “A sharp fall in profits means RMG makers will not have sufficient cash accruals to meet repayment obligations in the first half of this fiscal. But they are expected to utilise the cushion available in their working capital facilities, and will be helped by the moratorium on loan repayments, the government relief package to micro, small and medium enterprises, and the Covid-19 emergency credit lines.”
     
    According to the ratings agency, for RMG makers cash flows are likely to improve in the second half of this fiscal due to pick-up in demand from the third quarter as the festive season begins in India and fall and winter season begins in the export markets. "That would put RMG makers in a better place to service debt obligations," it says, adding, "given the material impact of weak business performance in the first half, the ratios of net cash accrual to loan repayments, and interest coverage will still be significantly weaker at 1.4-1.7 times and well below 3 times expected this fiscal, compared with 2.4 times and 4 times, respectively, in fiscal 2020.
     
    "Given the milieu, depreciation of the rupee against the dollar and the euro, and increase in incentive structure for exporters – which can help moderate the fall in profitability – will be the key monitorables," CRISIL concludes.
     
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