Moody's retains India's rating

Moody's retains India's rating
ENS ECONOMIC BUREAU

MUMBAI, OCT 11: Even as Standard & Poor's (S&P) downgraded India's rating on Tuesday citing government's inability to accelerate reforms, another international rating firm Moody's Investors Services has retained India's rating as positive.

The rating firm has assigned a Ba2 long term foreign currency issuer rating to National Thermal Power Corporation ("NTPC"). In a statement from Hong Kong, it said the rating reflects NTPC's dominant industry position, the supportive regulatory and operating environment and its adequate financial strength. It also reflects NTPC's strong management and sound track record. The rating already factors in existing and potential pressures from the deteriorating finances of the State Electricity Boards (SEBs) on NTPC's cashflow and the implication of its ambitious capital expenditure plans on the company's financial profile.

``It also reflects Moody's expectation that challenges from Independent Power Producers (IPP) to NTPC's dominant industry position to remain low in the medium term,' it said.

NTPC, a wholly-owned Government of India Enterprise, is the largest power utility in India, accounting for 25 per cent of the country's generation. It has benefited from supportive policies of and financial guarantees from the Indian Government and is the largest beneficiary of World Bank funds.

NTPC operates in a supportive regulatory environment. Tariffs are set by government on a "cost-plus" basis to reflect production costs plus a margin. NTPC is shielded from interest rate and exchange rate risks as these are passed through in allowable costs. The recently established Central Regulatory Commission has confirmed continuation of NTPC's present tariff regime until further notification. The tariff mechanism, together with strong electricity demand in the country, allows NTPC to generate stable cashflow. The company maintains adequate financial strength with strong capitalisation for a generation company of this rating level.

NTPC has a strong management, who demonstrated proficient understanding of both business and operational risks facing the company. It maintains sound track records in constructing, operating and managing its plants, reflected by improving and the higher than the country's average plant availability. The company's competitive generating cost at USD 2.65c per kWh puts it in a very defensible position against present and potential competitors.

The rating takes into account the existing and potential pressure on its cashflow resulting from the poor and deteriorating finances of the State Electricity Boards, NTPC's major customers. It also incorporates Moody's expectation that the various measures enforced, supported by the Indian Government, will ultimately help NTPC improve its receivable situation. Presently, approximately 80% of its sales are covered by Letter of Credit. The rating takes into consideration NTPC's ambitious capital expenditure plans, aiming to grow installed capacity from 17GW to 30 GW by 2007 and the potential negative impact on the company's financial profile in particular, leverage and interest coverage. It also reflects Moody's opinion that threat of IPPs will be low in the medium term, given large capacity shortfalls in India and the long time required resolving SEBs' financial situation to provide sufficient security to attract foreign/ private investors.