S&P's upgrades Power Finance ratings

Standard & Poor's Ratings Services on Friday raised the long-term foreign and local currency issuer credit ratings for Power Finance Corporation (PFC) to 'BB+' from 'BB', reflecting a stable outlook.

The rating upgrade reflects S&P's opinion concerning the strength of support from its sole owner, the Indian government (BB+/Stable/B), based on the company's role as the main government agency for financing the electricity sector.

The ratings on PFC are constrained by weak asset quality and borrower concentration. The stable outlook reflects that of the sovereign rating.

In addition, the outlook takes into account the expectation that PFC's strategic role and its status as a policy instrument of the government will prevail in the medium term, implying support from the sovereign. However, a material reduction in the government ownership of PFC or a major shift in the company's business mix outside its current policy role could result in a rating downgrade on PFC as either factor could dilute government support.

"Given the economic and political importance of the electricity sector and PFC's critical role, S&P believes the Indian government is likely to provide funding support to PFC, should it encounter difficulty in servicing its debt obligations," said Standard & Poor's analysis.

The ratings on PFC also derive support from a favourable capitalisation level, with common equity at 20.8 per cent of total assets at March 31.