Fitch Ratings has today affirmed India-based NTPC Limited's (NTPC) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-'. The agency has also affirmed the 'BBB-' rating on NTPC's USD200m Eurobond issue and its USD1bn medium-term note programme. The Outlook is Stable.
"NTPC's ratings reflect its established business position as the largest electricity generator in India and its comfortable financial profile, including stable profitability and strong liquidity emanating from its cash and equivalents," said Salil Garg, Associate Director with Fitch's energy and utilities team in India. "The company will remain a strategically important entity for the Government of India (GoI) in view of its large sectoral presence, which will strengthen further as it completes its large capacity addition program during the 11th five year plan."
The company has consistently achieved better operational performance than its industry peers, which has supported its profitability. NTPC's rating also benefits from the favourable regulatory regime which operates a cost plus basis tariff policy, covering all of NTPC's operating and under-construction units and ensuring a stable return on equity. All fuel costs are passed through to buyers under the tariff guidelines, thus resulting in low fuel price risk for NTPC. In addition, fuel availability risk for coal-based generating stations is mitigated through long-term supply agreements with state-owned coal mines, and NTPC relies on imported coal for only a small percentage of its total coal requirements.
Chronic power deficits in India, the growing demand for power and NTPC's long-term power purchase agreements with state power utilities (SPUs) translate to low off-take risks for power producers. However, the SPUs are suffering from high aggregate technical and commercial losses, which constitute a major counterparty risk on account of their weak financial profile. NTPC has nonetheless maintained almost 100% recoveries from its buyers during the last six years through its incentive scheme for prompt payment, the competing demand for power from across geographies, as well as its linkages with the GoI.
NTPC is undertaking a large capex program to increase its installed capacity to 50GW at the end of FY12 from the present 30GW. Fitch notes that projects for 18GW are under implementation. Although completion of a large part of this capacity addition could get pushed to FY2012 and face execution challenges including timely supply of equipments, NTPC is expected to minimise time and cost overruns through its strong project execution skills, support from its controlling GoI ministry, and through its leverage with leading equipment manufacturers.
A significant build-up of dues from buyers, a larger-than-expected capex programme and a downgrade of India's sovereign ratings could constitute negative rating guidance, whereas an upgrade of India's sovereign ratings would be a positive rating trigger. Fitch views NTPC's credit metrics in term of its adjusted net debt/operating EBITDA ratio and operating EBITDA/gross interest expense as comfortable at 1.7x and 5.2x respectively at FYE09, in spite of an increase in gross debt by INR73.7bn to fund the ongoing capex program. However, Fitch also anticipates that the company's credit metrics could deteriorate as NTPC implements its aggressive capex plans, but the metrics are expected to remain consistent with the rating category.
NTPC is an 89.5% GoI-owned company engaged in the construction and operation of power plants in India. The company owns and operates 27,850MW of capacity across 22 plants in 12 Indian states. In FY08, it had revenues of INR419bn and an EBITDA margin of 25.2%.
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