(The following was released by the rating agency)
MUMBAI/SINGAPORE, January 04 (Fitch) Fitch Ratings has
published India-based Power Grid Corporation of India Ltd's
(PGCIL) 'BBB-' Issuer Default Rating (IDR). The Outlook is
Negative. Simultaneously, the agency has published PGCIL's
'BBB-' senior unsecured rating and assigned an expected
'BBB-(EXP)' rating to its proposed bond.
The final rating on the bond is contingent on the receipt of
information conforming to the documentation already received.
PGCIL is rated a notch below its standalone credit profile
of 'BBB', due to constraint by the 'BBB-' IDR of its 69.4%
owner, the state of India, which is on Negative Outlook. The
Indian government, which has control over management and the
appointment of the board, can influence PGCIL's financial and
operating decisions. Fitch assesses the legal linkages between
the two entities as moderate as the Indian government guarantees
only 20%-30% of PGCIL's total debt.
PGCIL is strategically important to the Indian government
given its dominant position in India's electricity transmission
sector. The company accounts for more than 90% of India's
inter-state and inter-regional transmission systems and over 50%
of the electricity transmitted in India. The company benefits
from a stable and transparent regulatory system. The regulator,
the Central Electricity Regulatory Commission, is consultative
in its draft regulations. The well-established tariff mechanism
provides cash flow predictability by allowing for a return on
equity and has cost pass-through measures.
Tariffs are linked to PGCIL's transmission network
availability and are not dependent on the actual power
transmitted. PGCIL has maintained the system availability well
above mandated levels. In the financial year ended March 2012,
PGCIL's system availability was 99.94% against the regulatory
benchmark of 98%. Despite the grid failure in the Northern,
Eastern, and North Eastern Grids in July 2012, the availability
for H1 FY13 was 99.92%.
The stand-alone credit profile is constrained by the
company's weak counterparty profile and its high levels of debt
as a proportion of net fixed assets. Key counterparties are
state electricity board (SEB) distribution companies which have
weak financial profiles due to heavy accumulated losses.
However, PGCIL has managed to maintain receivables at healthy
levels. Distribution companies prioritise payments to PGCIL due
to the company's dominance in India's electricity transmission,
and also because transmission cost payments are small compared
with SEBs' payments to generation companies.
The company has capital expenditure of around INR1,000bn
planned for the next five years, which will largely be
debt-funded. This is likely to increase debt as a share of net
fixed assets to above 70% from 67% at FYE12. As a result PGCIL's
credit metrics are unlikely to improve materially over the
short- to medium-term. Its leverage, as measured by adjusted
debt net of cash to fund flow from operations (FFO), was around
6x at FYE12.
PGCIL has substantial secured debt. Currently, around 95% of
the total debt is secured against its tangible assets. As such,
Fitch has rated its senior secured debt at 'BBB-', one notch
below its unconstrained rating of 'BBB'.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or
collectively, lead to a negative rating action include:
- A downgrade of India's ratings
- FFO net leverage rising above 6x, and FFO fixed charge
cover falling below 2.5x (FY12: 2.9x), on a sustained basis, can
lead to a downgrade of the standalone rating
Positive: Future developments that may, individually or
collectively, lead to a positive rating action include:
-An upgrade in India's rating to 'BBB'. This would result in
an upgrade in the IDR, though the senior unsecured rating would
- FFO net adjusted leverage falling below 5x, and FFO fixed
charge cover rising over 3.5x, on a sustained basis, can lead to
an upgrade of the standalone rating.