Moody’s Investors Service has revised to negative from stable the outlook on the Ba3 corporate family rating and senior unsecured rating of Tata Power, days after the company said it will buy Welspun Renewable Energy at an enterprise value of Rs 9,249 crore.
Moody’s Corporate Family Ratings (CFRs) are long-term ratings that reflect the relative likelihood of a default on a corporate family’s debt and debt-like obligations and the expected financial loss suffered in the event of default. “The change in outlook to negative reflects the combined effect of entirely debt-funded nature of the transaction, which reduces headroom within the ratings, uncertainty regarding the terms and structure of the bank debt that will be raised to fund the acquisition, and limited details about the quality of the assets being acquired,” Moody’s Vice President and senior analyst Abhishek Tyagi said.
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With this acquisition, Tata Power’s debt will increase by approximately 21 per cent, thereby reducing the headroom within the rating, he said. Moody’s understands that Tata Power is raising a bridge bank facility to fund the transaction, and this facility could pressure the company’s liquidity profile depending on its terms, including maturity profile, he added.
With this transaction, Moody’s expects Tata Power’s Adjusted Debt/Capitalisation to increase, but to remain below the rating tolerance level of 75 per cent. Moody’s notes that the acquisition provides meaningful diversification benefits to Tata Power’s business profile with the increase in renewable projects in its portfolio which also have long-term power purchase agreements.
Tata Power’s renewable energy portfolio nearly doubles with this acquisition and would represent approximately 23 per cent of its generation capacity which is in line with its spelled out long-term strategy of portfolio fuel mix. Tata Power had on Monday said it will buy Welspun Energy’s subsidiary, Welspun Renewable Energy Pvt Ltd (WREPL), at an enterprise value of Rs 9,249 crore.