“The downgrades reflect the deterioration in Tata Power’s credit quality as a result of the impact of weak coal prices on its Indonesian coal mines, as well as the continuing uncertainty related to unresolved bank waivers and the tariff (rate) renegotiations for its Mundra Ultra Mega Power Project,” said Ray Tay, associate vice-president at Moody’s.
Moody’s also downgraded the company’s senior unsecured bond rating to B2 from B1 and the foreign currency rating for its senior unsecured medium-term notes programme to (P)B2 from (P)B1.
However, it has maintained a stable outlook for the ratings. The actions conclude the review for downgrade initiated in June, said the agency.
The Mundra project is being implemented through Tata Power’s fully-owned subsidiary, Coastal Gujarat Power Ltd. “While the investment in coal mines initially offered a possible hedge against Tata Power’s fuel costs, the recent weakness in coal prices has diminished this benefit, thereby eroding the cash contributions to Tata Power,” said Tay.
He added Moody’s expected margins at the mines to remain depressed.
Moody’s said the CGPL unit relies entirely on coal imported from Indonesia. Its profitability has been affected by the Indonesian government’s directive that coal be sold at market rates, thereby exposing it to considerably higher costs than expected at the inception of the Mundra project.
Tata Power is the largest private sector power utility in India, with an installed generation capacity of 6,099 Mw as of last month. Thermal power accounts for 86 per cent of its capacity.