International rating agency, Fitch Ratings, has affirmed
the 'BB+' senior unsecured foreign currency and local
currency ratings of the National Thermal Power Corporation
(NTPC). The agency has also affirmed the 'BB+' rating
of NTPC's $200 million bonds, which are due in 2011. The
outlook on the ratings is stable.
ratings take into account NTPC's status as a leading public
sector utility and its market prominence as the largest
generator in India, accounting for some 20 per cent of
the country's generating capacity. As the largest supplier
of power to the state electricity boards (SEBs), the SEBs'
escalating financial crisis during the late 1990s impaired
NTPC's cash flows. Though a government-backed settlement
in 2001 has set the sector on the recovery track, significant
ratings could go up if the sector continues to strengthen
and relevant risks continue to diminish over the medium
term," said Fitch director of global power (Asia)
Charles Chang. Chang noted that the settlement's credit
protection measures have already led to steady improvements
in NTPC's collection rates on invoices, which reached
100 per cent in FY04.
ratings also reflect the company's strong operating record,
its cost competitiveness relative to its domestic peers
and its substantial financial flexibility. In FY04, NTPC
generated Rs198.4 billion in revenues and Rs49.2bn in
EBITDA. In the six months ended 30 September 2004, it
generated Rs105.6bn in revenues and Rs27.3bn in EBITDA.
efficient operations and its rational tariff regime support
NTPC's margins. The agency says that high plant availability
and cost competitiveness have ensured high utilisation
rates at NTPC plants, which have supported both revenue
and profit levels. Although a tariff adjustment in FY02
has reduced EBITDA margins from the upper 30 per cent
range to the higher 20 per cent range, they are comparable
with NTPC's international peers.
substantial financial flexibility is characterised by
its low leverage, its strong coverage ratios and its well-balanced
debt maturity profile. The company's IPO and its inaugural
international bond issue this year have not only raised
significant cash resources for its capex plans, they have
further enhanced NTPC's access to domestic and international
points out that NTPC has maintained low debt levels and
robust interest coverage since the late 1990s despite
rising capital outlays and modest cash outflows. Net debt
to EBITDA was 1.8x in FY04, having remained at or below
2.1x since 1998, while EBITDA/net interest was 6.1x in
FY04, having remained above 6x in the last five years.
plans to double its capacity over the next eight years.
But the capex required for this will push up debt levels
and exert significant
pressure on NTPC's credit ratios. But cash flows from
new facilities should help keep the coverage ratios at
appropriate levels for the rating assigned.