State-run power giant NTPC’s standalone credit strength reflects its dominant position in the country’s power generation sector, solid financial profile for its rating level, and overall strong liquidity position, Moody’s Investors Service said today.
“Its strategic importance and close relationship with the government enhances its credit profile. NTPC’s ratings are thus highly correlated with India’s sovereign ratings,” Moody’s Investors Service said.
NTPC’s rating could be upgraded if India’s sovereign rating is upgraded and if the PSU’s underlying credit quality remains in line with its current baseline credit assessment (BCA) of Baa3.
In the absence of any upgrade to the sovereign rating, an upgrade to NTPC’s rating is unlikely because the company’s business profile is highly dependent on India’s economy.
Downward pressure on the rating could emerge if there are unfavourable regulatory developments, such as tariff reductions, which could negatively affect the company’s financial position. A sovereign downgrade could also impact the rating negatively.
Although NTPC’s financial profile is strong, it has been weakening as a result of capex. Hence, continued deterioration in its financial profile will exert pressure on the rating.
Furthermore, a rating downgrade could result if the government reduces its stake in NTPC to below 50 per cent, or evidence emerges of a weakening in government support.
“NTPC’s Baa3 rating reflects its baseline credit assessment (BCA) of baa3. The rating does not factor in any uplift from the government due to the high baa3 BCA relative to the Baa3 sovereign rating,” it said.
Nevertheless, Moody’s Investors Service believes that the government will financially back the company if extraordinary financial support is required, particularly in light of its 70 per cent ownership of NTPC.
“In April, 2015, we changed the outlook on ratings of NTPC to positive following the change in outlook for the India’s Baa3 ratings to positive,” it said.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.