ICRA has reaffirmed the 'AA' and 'A1+' ratings assigned to the non-convertible debenture programme and commercial paper/short term debt programme of Tata Power Company aggregating to Rs 26 billion and Rs 10 billion respectively. The outlook on the long-term rating is negative. ICRA has also assigned a long-term rating of 'AA' (negative) to the Rs 13.40 billion term loans of Tata Power.
The reaffirmation of ratings favourably factors in the stable cash flows generated from the company's operations in the license business, the successful commissioning of Mundra UMPP (4000 MW) and Maithon Power Project (1050 MW) and the favourable CERC order which provides a compensatory tariff to Mundra UMPP with retrospective effect from FY 2013 onwards, effectively mitigating the fuel price risks and significantly improving the viability of the UMPP.
The ratings also take into account the strong financial flexibility of the company arising from being part of the Tata Group and the demonstrated ability to raise long term funding at competitive rates.
The ratings are however constrained by the deterioration in the company's financial profile on account of the loss-making operations of Mundra UMPP and impairment loss provisions, as well as reduced profitability in coal business. The subdued profitability from the coal business arising from a reduction in international coal prices has affected the cash flows available to the company in the form of dividends, which thereby increases the need for timely refinancing of the near term debt obligations of the Coal SPVs.
The company also has exposure to forex risks, given the large foreign currency debt availed, especially for Mundra UMPP, though it has hedged its exposure for the next three to five year period. Further, the loan disbursement for Mundra UMPP has been capped by the lenders at 83% of the project debt; the company is currently in discussions with the lenders on revised term sheets, and a timely and satisfactory solution of the same remains important.
The 'Negative' outlook reflects ICRA's concern that the timely implementation of the compensatory tariff framework could be affected owing to the recent appeal from the affected Distribution utilities. Also, the company has large refinancing requirements in the near term and while the company has announced sale of stake in one of its Indonesian coal mines (for a consideration of about USD 500 million) and a rights issue (to raise Rs 20 billion) for which the subscription period has recently closed, the timely realisation of these proceeds remains important from a credit perspective.
