Moody's assigns Baa2 to NTPC's MTN drawdown

Moody's Investors Service has assigned a Baa2 rating to the proposed senior unsecured USD notes to be issued by NTPC Limited (NTPC, Baa2 stable).

The rating outlook is stable.

The notes will be issued under NTPC's existing USD6 billion medium-term note program (MTN) which is rated (P)Baa2.

The company plans to use the proceeds to finance capital expenditure of ongoing and/or new projects, coal mining projects and renovation and modernization of power stations.

RATINGS RATIONALE

"The Baa2 rating reflects NTPC's strategic importance as the largest power generation company of India as well as its close operational and financial links with the Government," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

The Baa2 ratings for the notes and the MTN program incorporate a one-notch rating uplift from NTPC's baseline credit assessment (BCA) of baa3, reflecting Moody's expectation that Government of India (Baa2 stable) will provide support to NTPC in times of stress.

NTPC's installed capacity represents 15.8% of India's installed power generation capacity. In terms of overall power generation, NTPC contributed 23.8% in the fiscal year ended March 2017 (FY2017).

NTPC's BCA is supported by a favorable regulatory framework, its solid financial profile for its rating level, payment security mechanism and strong liquidity position. Furthermore, the strong and sustainable growth evident in India's electricity demand supports the company's operating profile and its dominant position as a low-cost producer in the country's power industry.

The stable outlook on the rating reflects our expectation that NTPC will continue to generate relatively predictable cash flows for its regulated power business owing to its competitive position, and will maintain its sound liquidity profile.

An upgrade of India's sovereign rating will likely trigger an upgrade of NTPC's ratings.

Downward pressure on the BCA could emerge if there are unfavorable regulatory developments, such as tariff reductions, and which could negatively affect the company's financial position. A sovereign downgrade could also impact the rating negatively.

NTPC has a strong financial profile, although leverage has been increasing as a result of incremental capex to support capacity expansion. The BCA could be pressured if there is continued weakening in financial metrics, including FFO/Debt declining below 7.5% on a consistent basis. Having said that, NTPC's rating is resilient to a deterioration in the BCA.

Furthermore, a rating downgrade could result if the government reduces its interest in NTPC to below 50%, or evidence emerges of a weakening in government support.

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