S&P also affirmed the “BB” long-term and “B” short-term on Indian Railway Finance Corporation’s (IRFC) foreign currency corporate credit ratings, but, the outlook continues to remain negative. S&P said that the PFC’s rating affirmation is based on continued support from the central government and PFC’s sound profitability, strong capitalisation and dominant market position in the country’s electricity sector. However, S&P said that the key risks in the rating continue to be concentration of PFC’s assets in a single sector, and its weak asset quality due to the poor credit worthiness of its customers.
The rating also reflects the credit risks associate with the sovereign foreign currency rating of India.
“PFC’s rating derives substantial support from government of India due its role as the key government agency for financing of electricity sector in India,” said S&P’s credit analyst, Sharad Jain adding:”Given the economic and political importance of the electricity sector, and PFC’s critical role in the sector, S&P believes that the central government is likely to provide funding support to PFC, should it encounter any difficulty is servicing its debt obligations.”
However, S&P said that PFC’s superior financial profile is appropriate given its weak asset quality. The state governments and the electricity utilities owned by them have poor credit worthiness.
They consistently report operating losses and often face cash flow difficulties.
In regards to IRFC, the rating agency said that the affirmation is as the company continues to enjoy a symbiotic relationship with the ministry of railways.
However, the key risk in the rating continue to be IRFC’s ability to raise resources to fund growth, and some inflexibility in its relationship with Indian railways.