NTPC to benefit from UDAY, improved environment: Moody’s

By: | Published: November 18, 2015 2:16 PM

Moody's Investors Service today said state-run NTPC will benefit from improving operating environment for India's power sector and revival scheme UDAY for debt-ridden distribution companies.

ntpcMoody’s Investors Service today said state-run NTPC will benefit from improving operating environment for India’s power sector and revival scheme UDAY for debt-ridden distribution companies.

Moody’s Investors Service today said state-run NTPC will benefit from improving operating environment for India’s power sector and revival scheme UDAY for debt-ridden distribution companies.

“The improving coal environment and proposed debt reduction program should boost the ability of offtakers to buy electricity, which will in turn increase NTPC’s utilisation rates and incentive income,” said Abhishek Tyagi, Moody’s Vice President and Senior Analyst.

“Further, the government’s sale of a 5 per cent stake in NTPC will not affect our assessment of the support for the company,” adds Tyagi.

The government will retain a 70 per cent stake and NTPC remains of strategic importance as India’s largest coal-based generator, the agency said.

According to a statement, Tyagi was speaking on the release of a new Moody’s report titled ‘NTPC Limited: FAQ on Coal Availability, State Distribution Companies Finances and Government Stake Sale’ that addresses frequently asked questions by investors on some of these changes in the company’s operating environment.

Moody’s report highlights several important developments that affect the credit profile of India’s power sector over the past year.

Most significantly in the domestic market, Coal India (unrated) has reported an increase in domestic coal production over the 19 months to October, which given that domestic coal is currently around 45 per cent cheaper than imported coal on a landed cost bases, should result in lower overall tariffs that are charged by power producers.

Lower tariffs will in turn increase the offtakers’ ability to buy electricity, and thereby lead to higher incentive income for NTPC.

Similarly, the debt restructuring scheme aims to reduce the debt burden of state-owned distribution companies, thereby increasing their financial capacity to offtake power.

These companies’ limited ability to offtake power has been a key driver of a widening gap between NTPC’s plant availability and utilisation rates in recent year.

As such, the debt restructuring scheme, if successful, would boost the utilisation rates of NTPC’s plants and increase incentive income, it said.

Finally, Indian government had recently proposed to sell a 5 per cent minority stake in NTPC during the fiscal year ending March.

Moody’s does not expect this stake sale to affect the level of government support available for NTPC, given its dominant position in India’s power sector, it said

Specifically, NTPC contributes around 16 per cent of India’s conventional installed power generation capacity, and 25 per cent of total power generation.

In addition, about 90 per cent of the power generated by NTPC is sold to state government owned distribution companies, underlining its key importance to the sector.

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