Fitch affirms Power Grid Corporation's 'BBB-' rating, outlook 'negative'

The Fitch ratings on Power Grid Corporation of India Ltd are constrained by the credit profile of the India sovereign (BBB-/negative), which owns 51.34 per cent of the company

Rating agency Fitch has affirmed Power Grid Corporation of India Ltd's (POWERGRID) long-term foreign- and local-currency Issuer Default Ratings (IDRs) at 'BBB-'. The outlook is 'negative'.

The ratings are constrained by the credit profile of the India sovereign (BBB-/negative), which owns 51.34 per cent of the company, under Fitch's Government Related Entities Rating Criteria.

However, Powergrid's Standalone Credit Profile (SCP) of 'bbb+' benefits from the regulatory nature of more than 90 per cent of its revenue, supported by a stable regulatory regime. The current five-year regulatory tariff period ends in March 2024 which provides certainty of cash flows. Also, it has a dominant market position in the Indian power transmission sector and strong financial profile.

Fitch in a statement said it considers the status, ownership and control of  Powergrid  by the Indian government as 'strong' considering its strategic importance in the Indian power transmission sector.  

Fitch assesses the socio-political implications of a  Powergrid  default as 'moderate', a default is unlikely to severely disrupt transmission services as long as the infrastructure is maintained. The financial implications of a default are assessed as 'Strong' since POWERGRID is a key state-owned borrower. A default could significantly limit the availability of financing for other government-related entities (GREs).

The corporation has seen an increase in receivables marked by weak counterparties.  Powergrid's receivable days (adjusted for bills discounted) increased to 70 days by end-December 2021 (45 days excluding adjustment) compared with 60 days at end-March 2021 (34 days excluding adjustment).

For the bills discounted, the interest portion and other financing charges are borne by the utilities, but creditors still have recourse to POWERGRID should the utilities fail to make payments.  Fitch consequently treats the bill discounted amount as  Powergrid's debt. So far there has been no default in the repayment by the state utilities against bill discounting, it added.

Powergrid's trade receivable days (including bills discounted) are expected to remain close to 65 days in the financial year ending March 2022 (FY22) and at 62 days starting FY23.