The Hindu Business Line : Tata Power debt rating downgraded

ICRA has revised the rating assigned to the long-term debt programmes of Tata Power Company Ltd (TPC) from LAAA to LAA+. The revised rating indicates a single notch downgrade from the "highest safety" to "high safety."

The rating for the commercial paper programme of the company, however, has been retained at A1+, indicating highest safety in the short term.

The rating revision, according to an ICRA statement here, is primarily on account of the increase in the business risk profile of Tata Power as a result of the likely increase in competitive pressure in its core Mumbai licence area, the regulatory uncertainty associated with the Maharashtra Electricity Regulatory Commission deciding the company's tariff and the substantial expansions planned by the company.

TPC's large exposure to the telecom sector, which is unlikely to yield returns in the near future, will also continue to impact its `return on capital employed' (RoCE).

The rating considers TPC's investment plans in the power sector and notes that these are likely to be funded with prudent leveraging.

The high safety rating also takes into consideration the currently strong financial position of the company, its healthy debt servicing indicators and its established position as a reliable bulk supplier of power in the Mumbai region.

The company's high degree of financial flexibility arising from its strong financial position and its status as a Tata group company also supports the ratings, the statement said.

Tata Power has a total generation capacity of 1,798 MW for serving the licensee area in the city of Mumbai.

Under the Sixth Schedule-based tariff setting process, the company was assured a 16 per cent RoCE in the licensee business and the company has consistently been able to earn a clear profit equal to reasonable return even though the basic tariff has not been revised since 1998.

With an assured `return on equity' (RoE) and sale to creditworthy clients like Tata Steel and ACC, the `non-licensee' business and credit risks in this segment can be considered as low.

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