ICRA has reaffirmed the rating 'AAA' rating to the outstanding Rs 71,622.19 long term bonds and Rs 48.08 billion long term bank loans of Rural Electrification Corporation (REC). ICRA has an outstanding rating of 'AAA' to the Rs 370 billion borrowing programme (for 2013-14) of the corporation, including Rs 50 billion subordinate debt programme. ICRA also has an outstanding rating 'A1+' to Rs 50 billion short term borrowing programme of the corporation for 2013-14.
The AAA ratings are underpinned by REC's sovereign ownership (66.8% as on Dec. 31, 2013) and the important role the corporation plays as a nodal agency for the Government of India's rural electrification schemes under the Rajiv Gandhi Grameen Vidhyutikaran Yojna (RGGVY) and also a sole nodal agency for operationalisation of NEF scheme. Further, REC, as one of the major power sector financiers, remains strategically important for the Government of India (GoI), given the latter's objective of augmenting power capacities across the country. The ratings continue to draw comfort from REC's comfortable earnings profile, its comfortable liquidity position, and its strong financial flexibility, which, along with its access to low-cost capital gains bonds and Tax Free Bonds (together accounting for around 22% of total borrowings as on Dec-13), enables it to raise long-term funds at competitive rates.
ICRA however notes that distribution companies in the states of Uttar Pradesh, Tamilnadu, Haryana and Rajasthan, which have relatively weak financial health, have completed the re-structuring of their short term bank liabilities under the ‘Scheme for Financial Restructuring of State Distribution Companies (Discoms)'; other states are also expected to participate under this scheme, which should improve the short-term liquidity profile of participating state power utilities; whether this also leads to a structural improvement in their financial health remains to be seen and is contingent upon the extent to which measures such as timely tariff revision, and timely action from state governments are implemented as per the requirement of scheme. REC's exposure to the above mentioned four states which are currently participating under the scheme accounted for 39% of its total loan assets as on Mar-13.
ICRA also notes the Appellate Tribunal of Electricity (APTEL) recommendations on timely tariff finalization by SERCs and the revision/ proposed revision in power sale tariffs by certain states. ICRA continues to closely monitor the developments in the power sector and timely implementation of the aforesaid recommendations and also speeding up of technical and commercial loss measures by state utilities will thus be critical for maintaining the health of the power sector companies. Similarly, policy level changes to alleviate concerns with respect to fuel linkages for private sector projects, where the share of RECs exposures has been increasing, may have a critical bearing on its credit profile.
Shares of the company gained Rs 0.9, or 0.38%, to trade at Rs 239. The total volume of shares traded was 58,378 at the BSE (1.55 p.m., Thursday).
