However, the ratings service also said it will need to monitor closely the impact these transactions will have on NTPC's financial structure as well as its chronic accounts receivable problem.

NTPC is rated double-'B' on a foreign currency basis with astable outlook. The government of India has announced its intention to sell its 100 per cent stake in National Hydroelectric Power Corporation (NHPC; un rated) to NTPC for Rs 45 billion (roughly $1 billion). The government's primary motive for the sale is to reduce its fiscal deficit. The proposed acquisition will facilitate NTPC's entry into the hydroelectric sector and diversify its fuel mix. While NTPC does not have previous experience with hydroelectric plants, it does have a strong track record in electric power operations.

NTPC's financing plans for the NHPC acquisition have not yet been decided. The company has proposed to the government that it be allowed to securitise around Rs.50 billion of its outstanding receivables to finance the acquisition.

Nevertheless, while a securitisation would provide immediate cash for NTPC, it would not address the difficulties of collecting from the financially strapped State Electricity Boards (SEBs) in the future. Alternatively, the company may have to raise additional debt to finance the acquisition if it simultaneously proceeds with its Rs 37 billion capital expenditure programme.

The acquisition of NHPC is also likely to increase NTPC's exposure to the SEBs. At the same time, NTPC is considering divesting some of its existing plants to the private sector. The credit effect of any divestiture of assets would depend in part on the location of the plants (which plants would be sold has not yet been determined). A divestiture of coal-fired plants in eastern India could be positive for NTPC's credit quality since this would reduce exposure to some of the poorer performing SEBs.

On the other hand, a sale of power plants in the western or southern region could reduce sales to better paying customers. Standard & Poor's will monitor NTPC's actions and will comment further as more details become available.