Mumbai: Tata Power’s Ba3 corporate family rating, B1 senior unsecured bond
rating and senior unsecured MTN programme (foreign currency) rating of (P) B1 is
being reviewed by Moody’s Investors Service for possible revision.
The company disclosures cited certain financial covenants in respect of loan taken by its 100 percent subsidiary, Coastal Gujarat Private Limited (CGPL) that is developing a 4000 MW Ultra Mega Power Project (UMPP) in Mundra. The rating action reflects covenant breaches on bank debt associated with Tata Power’s Mundra project and questions relating to the project’s long-term impact on its financial profile, absent changes to cost or tariff structures. These covenants include financial ratios defined in the loan agreements. Due to the impairment charges of Rs 1800 crores and foreign exchange fluctuations, some of these ratios have been adversely impacted. However, the covenant breaches do not constitute a payment default.
Moody’s review of Tata Power’s ratings for possible downgrade will focus on:
The review will also incorporate the forthcoming release of Tata Power’s full financial statements for year ending March 31, 2012. Moody’s will closely monitor Tata Power’s progress towards resolving the waivers and expects to conclude its review in about one to three months.
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 three to six months. CGPL has also made a request to 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.”
The 4000 MW Mundra UMPP is the first of the UMPPs which heralds the entry of environmentally efficient 800 MW super critical boiler technology in India. CGPL declared commercial operation of Unit 1 on March 9, 2012. The second unit is scheduled for commissioning by August 2012. Work on Units 3, 4 and 5 of the project is on track and progressing well. CGPL has also commenced trials of blending low coal grade imported coal to offset cost. Initial reports have been encouraging and suggest that upto 70 percent blending is possible, which may offset some of the cost impact due to steep increase in international coal prices. Tata Power is also awaiting discussions with procurers and government of India.
Commenting on the subject, Anil Sardana, managing director, Tata Power said, “The issue of rise in cost of imported coal is not specific to Mundra, but impacts all imported coal based projects in the country which exist and would need to be developed from herein after. Representations have been made to beneficiaries, the Ministry of Power and PMO to resolve this issue."
"While the average fuel price details changes from consignment to consignment,
we would like to emphasise that Tata Power had contracted coal from Indonesia
on terms, which were a mirror of CGPL tariff quoted as variable charge. However,
since the Indonesian government has changed the export norms for coal, Tata Power
can’t get imported coal based on contracted terms. The problem has got compounded
as Australia and African countries have also had changes, which does not enable
discounted coal prices possibility. We are in talks with procurers and the central government for a resolution of this issue. We have successfully done 70 percent blending
with low cost imported coal to offset some of the increase in cost,” he added.
Moody's last rating action with regard to Tata Power was taken on October 23, 2008, when the company's rating outlook was raised to stable from negative.