The Government of India's sale of its 5% stake in NTPC has no impact on the company's ratings said Moody's Investors Service. After the sale, the government will continue to hold a majority stake of 69.96% in NTPC.
NTPC's ratings remain supported by its strategic importance to the Indian economy, given its position as India's largest power generation company.
NTPC's Baa3 issuer rating reflects its baseline credit assessment (BCA) of baa3. The rating does not factor in any uplift from the government due to the high baa3 BCA relative to the Baa3 sovereign rating.
''We expect the government to maintain its majority stake in the company even after the sale of the 5% stake which, as such, does not affect our assessment of sovereign support for NTPC,'' says Abhishek Tyagi, a Moody's vice president and senior analyst.
The sale of the stake is part of the government's disinvestment program by which it targets to raise INR695 billion in the fiscal year ending Mar. 31, 2016 (FY2016).
''We will reassess the level of government support incorporated in the company's ratings only if the government's shareholding falls below 50%, or if there are other indicators of a change in the relationship between the government and NTPC,'' says Tyagi.
''However, we see this as an unlikely scenario, given the strategic importance of NTPC as the country's largest power generator , accounting for 25% of power generation and 17% of installed conventional power generation capacity,'' says Tyagi.
NTPC's rating could be upgraded if India's sovereign rating is upgraded and if NTPC's underlying credit quality remains in line with its current BCA of baa3. In the absence of any upgrade to the sovereign rating, an upgrade to NTPC's rating is very unlikely because the company's business profile is highly dependent on India's economy.
NTPC's issuer rating would come under downward pressure if there are unfavorable regulatory developments, such as tariff reductions, and which could negatively affect the company's financial position. A sovereign downgrade could also impact the rating negatively.
Furthermore, a rating downgrade could result if the government reduces its interest in NTPC to below 50%, or evidence emerges of a weakening in government support.
