India Ratings Downgrades SWREL to Default Grade

In a move that is likely to shock, if not surprise quite a few in the industry, India Ratings and Research (Ind-Ra) has downgraded Sterling and Wilson Renewable Energy Limited’s (SWREL) bank facilities’ ratings to ‘IND D’ from ‘IND BB-’ while resolving the Rating Watch with Negative Implications.

According to India Ratings, the key driver for the move was a failure to repay debt obligations that were due in September, 2023.

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“SWREL had a scheduled repayment of INR4,261 million in September 2023, out of which INR2,177 million (INR1,350 million, excluding invoked BG) was not paid on the due date due to insufficient liquidity. Furthermore, the internal cashflow would be inadequate to meet the repayments of INR3,323 million (INR2,200 million excluding invoked BG) in October 2023.

During 1QFY24, the overseas subsidiary received an intimation regarding the invocation of BGs amounting to INR3.9 billion (USD47.2 million) with respect to two projects. The company has partially honoured the BGs; however, as on 30 September 2023, around INR2.7 billion (USD33.1 million) was yet to honoured. While Ind-Ra expects a recovery in the operating performance in FY24, with the company’s gross margin having turned positive in 1QFY24, the accruals from operations will not be sufficient to meet the near-term repayment obligations.

The management intends to honour the balance BGs and the scheduled repayments through raising of funds by way of issuance of equity shares, global depository receipts, depository receipts, foreign currency convertible bonds fully/partly convertible debentures, non-convertible debentures, and/or any other financial instruments convertible into equity shares (including warrants) or a combination of any of the securities  mentioned above in one or more tranches through one or more public and/ or private offerings, including by way of a qualified institutions placement, or any combination for an aggregate amount not exceeding INR15 billion. The said fund-raising plan was approved by the board of directors on 27 September 2023.”

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For SWREL, which counts the Reliance group as a promoter entity now, the downgrade could have far reaching implications at a time when the road to recovery was finally visible, thanks to some big ticket project wins in the past quarter.

The deterioration in finances have been linked to large overseas orders that were contracted at a fixed price, which became completely unviable during 2021-22 due to the sudden rise in solar module costs. For SWREL, the period since then has been a painful climb out from those commitments, involving settlements and as of now, encashment of bank guarantees. It was widely expected that the firm would finally be out of those obligations by Q2 or Q3 this year. Clearly, the toll has been much higher on it’s cash flows and liquidity.

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