NHPCs rating outlook revised to negative: Crisil

Mumbai, May 25 | Updated: May 26 2007, 05:30am hrs
Crisil has revised its outlook on the borrowing programmes of National Hydroelectric Power Corporation Ltd (NHPC) to Negative from Stable. The change in outlook is driven by the increased level of NHPCs capacity expansion plans, its aggressive funding of these projects, and the resultant impact on its credit profile. NHPCs borrowing programmes include bond issues of Rs 1,000 crore and Rs 500 crore. NHPC has an installed capacity of 3145 mw.

Crisil believes that NHPCs capital structure will deteriorate owing to the planned capacity additions over the medium to long term, and improve thereafter as these projects come on stream. Also, NHPCs liquidity is constrained by the weak credit profile of its customers, primarily the state electricity boards (SEBs). Crisil believes that although the current stringent norms help central power sector utilities collect payments from the respective state funds parked with the RBI, thus minimising the risk, the SEBs repayment behaviour will remain a monitorable.

Crisil has taken a consolidated view of the financials of NHPC along with its 51% subsidiary, Narmada Hydroelectric Development Corporation Ltd. NHPCs strengths are its ownership by the Government of India (GoI), strong operating efficiency, stable cash flows due to regulated tariff, and strong management skills. These are, however, partially offset by its large capital expenditure (capex) plans (resulting in a weak capital structure) and the weak financial profile of its customers.

NHPC is wholly-owned by GoI and is under the administrative and managerial control of the ministry of power. Crisil believes that GoI will continue to provide equity infusions to support NHPCs generation capacity expansions, which will result in enhanced cash accruals for the company over the medium term.

Reviewed

Crisil believes that NHPCs capital structure will deteriorate
NHPCs liquidity is constrained by the weak credit profile of customers
NHPC has a strong operating efficiency, with a high capacity index factor

NHPC has a strong operating efficiency, with a high capacity index factor (CIF) of 98% (in 2005-06). The company recovers all its fixed costs at a level of 90 % CIF; the high actual CIF therefore ensures high recovery and stable profitability over the medium term. NHPCs cash flows are expected to remain strong, given the negligible costs in generating hydroelectric power and the stable profitability provided by a regulated tariff environment. Crisil expects NHPCs strong project management skills to enable it to complete its capacity addition projects on time.

The negative outlook on NHPCs borrowing programmes is underpinned by the increased level of the companys capacity expansion plans as compared to its existing capacity base.