India Ratings & Research (Ind-Ra) has assigned NHPC proposed Rs 16 billion secured non-convertible taxable bonds a long-term 'AAA(exp)' rating. NHPC proposes to raise the bonds in two tranches-S1 with a tenor of 10 years with no moratorium and S2 with a tenor of 15 years including three year moratorium period. The funds raised through this issue are likely to be used by NHPC to meet capital expenditure requirements of the on-going projects and recoup the expenditure already incurred.
NHPC operates its hydro plants under the cost-plus regulatory framework outlined by Central Electricity Regulatory Authority (CERC). The regulations are robust and lead to high cash flow predictability as they provide a post-tax return of equity of 15.5%-16.5% along with a reasonable recovery of all costs. Additionally, NHPC’s upcoming plants are also likely to be under the same regulatory framework, reducing business risk. Also, the new CERC framework for FY14-FY19 does not impact hydro power developers negatively.
Ind-Ra believes NHPC's financial leverage to have peaked in FY14 (year end March) at 3.2x on full debt draw down for the commissioned capacity of 807MW, a share buyback leading to lower cash, lower generation and lower incentives. Ind-Ra expects the leverage to decline in FY15 on higher incentive income, incremental EBITDA from newly commissioned plants and the restart of Dhauliganga hydro power plant. However, a meaningful decline in the leverage could be some time away due to the 3,290MW under construction projects.
Ind-Ra expects NHPC to declare higher-than-normative average availability and higher generation in FY15. Increased generation would be driven by 807MW newly commissioned capacity, restart of Dhauliganga and better water availability. This could lead to a strong capacity charge incentive, secondary energy income aiding cash flows. During FY14, NHPC’s incentive income declined to INR3.3bn (FY13: INR3.9bn) on lower income from secondary energy income and unscheduled interchange as generation remained muted.
Ind-Ra expects NHPC to maintain its overall receivable position despite the weak financial health of state power utilities, its customers. The expectation is based on NHPC's dominant position in the Indian hydro power sector, GoI ownership, presence of a letter of credit, ability to regulate power and prompt payment discounts. At a standalone level, receivables declined to Rs 18.5 billion in FY14. However, 52% of the receivables are greater than 60 days, primarily on account of Rs 8.7 billion dues from Power Development Department, J&K. The management is hopeful of recovering this amount during the year.
Shares of the company was last traded down Rs 0.4, or 2.05%, at Rs 19.10. The total volume of shares traded was 882,265 at the BSE (Wednesday).
