Moody8217;s retains India8217;s rating

MUMBAI, OCT 11: Even as Standard amp; Poor's Samp;P downgraded India's rating on Tuesday citing government's inability to accelerate r...

MUMBAI, OCT 11: Even as Standard amp; Poor8217;s Samp;P downgraded India8217;s rating on Tuesday citing government8217;s inability to accelerate reforms, another international rating firm Moody8217;s Investors Services has retained India8217;s rating as positive.

The rating firm has assigned a Ba2 long term foreign currency issuer rating to National Thermal Power Corporation quot;NTPCquot;. In a statement from Hong Kong, it said the rating reflects NTPC8217;s dominant industry position, the supportive regulatory and operating environment and its adequate financial strength. It also reflects NTPC8217;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 NTPC8217;s cashflow and the implication of its ambitious capital expenditure plans on the company8217;s financial profile.

8220;It also reflects Moody8217;s expectation that challenges from Independent Power Producers IPP to NTPC8217;s dominant industry position to remain low in the medium term,8217; it said.

NTPC, a wholly-owned Government of India Enterprise, is the largest power utility in India, accounting for 25 per cent of the country8217;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 quot;cost-plusquot; 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 NTPC8217;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 country8217;s average plant availability. The company8217;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, NTPC8217;s major customers. It also incorporates Moody8217;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 NTPC8217;s ambitious capital expenditure plans, aiming to grow installed capacity from 17GW to 30 GW by 2007 and the potential negative impact on the company8217;s financial profile in particular, leverage and interest coverage. It also reflects Moody8217;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 SEBs8217; financial situation to provide sufficient security to attract foreign/ private investors.