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The outlook on Tata Power was revised to positive from negative by rating agency Standard & Poor's today. This move came after the central power regulator allowed the company to recover its increased costs at Mundra power plant, in the form of hiked tariff.
"Our outlook also reflects our expectation that the company will be able to address the loan covenant breach at its Mundra project over the next 12 months, given the favorable regulatory decision," said Rajiv Vishwanathan, credit analyst at Standard & Poor's.
The rating agency also affirmed 'B+' long-term corporate credit rating on the company and the 'B+' issue rating on its senior unsecured notes. Recently, the company sold its 30% stake in one of its coal mines in Indonesia for $500 million. The proceeds will go into repayment of debt. Tata Power is also going for a rights issue to raise as much as Rs 2,000 crore.
S&P believes that this amount raised will enable it to meet its debt repayment obligations of around Rs 3,300 crore, in the next one year. The tariff hike enabled by the regulator allows Tata Power to pass on the increased fuel costs from imports from Indonesia for its 4,000 ultra mega power project. This move will improve the consolidated cash flows of the fiscal.
"While there is a possibility of appeals from buyers of power over the tariff order, we expect this to be resolved quickly given the extended process and discussion between the regulator and affected parties prior to issuing the order," said Vishwanathan.The agency also said that it does not see large capital spending or debt-financed acquisitions in the next 12 months.
"The reduced consolidated debt and improved cash flows are likely to raise the company's ratio of funds from operations (FFO) to debt to 12-14% in 2014-15.
