| "TPC was originally placed on review for possible downgrade on January 30, and today's rating action follows the announcement that TPC has signed definitive agreements to purchase 30% equity stakes in two major Indonesian thermal coal producers and a related trading company," says Jennifer Wong, a Moody's Analyst. |
| "The agreements are part of moves to address the fuel requirements of the Mundra Ultra Mega Power Project (UMPP), the Trombay project and a coastal project in Maharashtra State," says Wong. |
| The latest intended acquisitions - for a total of US$1.1 billion prior to working capital and other adjustments - include PT Kaltim Prima Coal , PT Arutmin Indonesia and a coal trading company, all of which are currently owned by PT Bumi Resources Tbk. |
| TPC has also signed an offtake agreement with PT Kaltim Prima Coal, and which allows it to purchase 10 million tones of coal per annum. |
| The ratings had originally been placed on review for downgrade due to TPC's aggressive plan to more than triple its generation capacity in the next five years. |
| "TPC expects to acquire the Indonesian companies through an offshore special purpose vehicle (SPV), while funding will be through a mix of debt in the SPV, internal accruals and borrowings from TPC itself," says Wong. However, a specific funding plan has not yet been disclosed as the company is still finalizing the funding package that would also cover |
| other projects, including Mundra. |
| "To the extent that the acquisition is majority debt-funded, TPC's consolidated debt level could double from US$1 billion as of 31 March 2006, thereby further weakening its credit metrics," says Wong. |
| "At the same time, the negative financial impact of this transaction has to be considered in conjunction with the company's overall expansion plan and changing risk profile," adds Wong. |
| "Moody's understanding is that TPC will require 21 million tons of imported coal for its planned projects and the new acquisitions would secure half of its requirements," says Wong. TPC has also indicated the deal is complementary and supports the assumptions made in its bid for Mundra. |
| The Moody's review will continue to focus on the funding plans for Mundra, the latest acquisition plan and other projects, and the consequent impact on TPC's leverage, debt coverage and liquidity. The review will also evaluate the underlying tariff assumptions for |
| Mundra, potential associated counterparty risk, as well as the company's risk appetite for future expansion. |
| To the extent Mundra and the latest acquisition plan are majority debt-funded and lack a cost-pass-through tariff mechanism - with resultant higher cash flow volatility - then the rating could undergo a downgrade of more than one notch. |
| TPC is the largest private sector power utility in India with an installed generation capacity of 2,323MW and a presence across the power business system in generation (thermal, hydro, solar and wind), transmission and distribution. Headquartered in Mumbai, TPC has a strong presence in the area, meeting about 80% of its power requirements. |
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