ICRA Lanka Limited has assigned the issuer rating of [SL]BBB+ with Stable outlook for Lotus Hydro Power PLC (LHP or the Company).
ICRA Lanka has taken a consolidated view on Lotus Hydro Power PLC and its subsidiaries, given the significant operational and financial linkages among them.
The rating primarily factors in the Company’s satisfactory operational track record in the power sector since 2000, comfortable capital structure, healthy financial profile supported by comfortable profitability and healthy coverage matrices and the potential growth opportunities in the renewal energy sector.
LHP currently operates four Mini Hydro Power Plants (MHPPs) accounting for a total power generation capacity of 4.9 MW. Sanquhar and Delta power plants are directly owned by LHP and Thebuwana and Stellenberg are 100% subsidiaries of LHP. The consolidated business is managed as one operation.
The majority of the Company’s Power Purchase Agreements (PPA) with the Ceylon Electricity Board (CEB) are in place for the next 10-20 years, which provides strong revenue visibility over the long term. Given the government backing for CEB, the counterparty credit risk is expected to be limited, although, ICRA Lanka has noted that the payment cycle has stretched in FY2021 due to the pandemic.
The Company reported healthy profit margins over the past five years. The profit margins remained volatile due to the vagaries of the monsoon. The Company reported a healthy capital structure due to low debt at the consolidated level. At a standalone level, LHP is debt-free.
Going forward, ICRA Lanka envisages moderation in the capital structure with the issuance of the proposed LKR 1,000 Mn debenture.
The Company reported healthy coverage ratios with a Debt Service Coverage Ratio (DSCR) of 14.3x in 9MFY2021 as compared to 4.8x in FY2020 and 4.6x in FY20219. The DSCR improved due to lower debt at a consolidated level as a result of the maturity of the existing debt. ICRA Lanka envisages that the DSCR ratio will continue to remain comfortable post the issuance of the proposed debenture.