S&P may lower the rating on Tata Power if:

1. The company is unable to secure a waiver from its lenders on the breach of covenant; or,
2. An increase in expenditures due to the Mundra project or otherwise substantially weakens Tata Power's financial risk profile. A ratio of funds from operations to adjusted debt of less than 10 percent on a sustainable basis would indicate such deterioration.

S&P could revise the outlook to stable if Tata Power:

1. Secures the necessary waiver, and construction at the Mundra project continues as planned and within budget;
2. Faces no material deterioration in its business and sustainably maintains its financial risk profile, such that its ratio of funds from operations to adjusted debt is 10 -12 percent.

To provide protection to CGPL and support its cash flows, Tata Power has already proposed to transfer at least 75 percent of its equity interest in the Indonesian coal mines and also continues to evaluate other alternative options. The company has been in advanced discussions with the lenders to finalise structure for transferring coal SPV dividends and the process is expected to take 3-6 months. CGPL has also made a request to the lenders for certain waivers including those pertaining to financial covenants and the same is under consideration.

Commenting on this, S Ramakrishnan, executive director, finance, Tata Power, said, “To support CGPL’s cash flows, the company has been in advanced discussions with the lenders to finalise structure for transferring coal SPV dividends. The matter is under consideration by the lenders for approving waivers in certain cases. Given the technical nature of the covenant breaches comprising mainly non-cash entries like impairment and forex costs, we believe our request should get favourable consideration. Further, the covenant breaches do not constitute a payment default.”