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Related Issuers
Rating Action:

Moody's assigns first-time Baa3 rating with a positive outlook to NHPC

21 Jun 2017

Singapore, June 21, 2017 -- Moody's Investors Service, ("Moody's") has assigned a Baa3 issuer rating to NHPC Limited.

The outlook on the rating is positive.

RATINGS RATIONALE

"NHPC's Baa3 rating reflects its baseline credit assessment (BCA) of baa3. The ratings does not factor in any uplift from the government due to the high baa3 BCA relative to Government of India's Baa3 sovereign rating," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst. Moody's however expect that the Indian government will provide strong support in the event that extraordinary financial support is required, particularly in light of its 74.5% ownership of NHPC.

"NHPC's standalone credit strength reflects its strong competitive position, favorable regulatory environment for power sector in India, strong financial profile and ongoing government support," Tyagi aads.

"NHPC's rating also incorporates the implementation risk associated with the company's capex program which constrains its BCA," adds Tyagi.

Moody's expects NHPC to have the interest coverage as measured by (CFO pre-WC + interest) / interest to range from 3.0x-4.5x level and its financial leverage as measured by , CFO pre-WC / debt to be in the range of 15%- 22% over next 12-24 months which will continue to support its BCA.

NHPC is the largest hydro power generator of India and has long track record of development of hydro power projects. NHPC is also one of the lowest cost producers of electricity in India which underpins its strong competitive position in the industry.

However, NHPC has a complex capex programme mainly due to the nature of the hydro power industry. The construction of hydro power projects in remote areas and geo-technically sensitive Himalayan terrain has many challenges like geological and hydrological surprises, landslides and flash floods. Moreover, large hydro projects also require huge amount of land acquisition which is often opposed by local population and sometimes becomes a law and order challenge as well. These pose significant challenges for construction and most often than not lead to project delays and time and cost overruns.

NHPC is a beneficiary of ongoing support from the Government of India. Despite the weak finances of state-owned distribution companies, NHPC has enjoyed a good track record of receipt of payments from distribution companies over last 12 years since the establishment of Payment Security Scheme. The Payment Security Mechanism is based on tripartite agreements between central government, state governments and the Reserve Bank of India, and these agreements ensure payments to NHPC in the event of default by state owned distribution companies. The Government also provides support to NHPC in resettlement and rehabilitation (R&R) activities, acquisition of land, taking care of law and order issues and also providing financial support in terms of soft loans.

Under the Moody's Joint Default Analysis (JDA) approach for government-related issuers (GRIs), our assessment of government support for the company is "High" and is manifested through several considerations. Specifically, the government has 74.5% ownership and therefore closely directs the activities of NHPC. The government also has a strong track record of support, as shown by its previous actions that include: (1) one time settlement scheme in 2003 which led to settlement of all past dues of state-owned distribution companies (2) extending soft loans to NHPC for certain strategic projects (3) establishment of Payment Security Mechanism to take care of receivables from state owned distribution companies.

NHPC's positive outlook is consistent with the outlook on the sovereign, indicating that the rating would be upgraded if the sovereign rating is upgraded.

Upward pressure on the rating is unlikely over the next 12-18 months, based on the company's business profile and financial strategy.

The BCA of NHPC could come under pressure if CFO pre-WC / debt declines below 13% on a consistent basis. Having said that, NHPC's rating is resilient to a deterioration in the BCA.

Furthermore, a rating downgrade could result if the government reduces its stake in NHPC to below 50% or evidence emerges of a weakening in government support.

The methodologies used in this rating were Regulated Electric and Gas Utilities published in December 2013, and Government-Related Issuers published in October 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

NHPC Limited was established in 1975 and is India's largest hydro power generation company with an installed capacity of 6,717MW from 22 operational projects. The Company is presently engaged in construction of three projects aggregating 3,130MW capacity. The company is awaiting clearances to start work on another 4.9GW capacity while another 1.1GW projects are in the pipeline. At end-March 2017, the Indian government owned around 74.5% of NHPC. Life Insurance Corporation of India, the other major shareholder, owned 9.14%. Institutional investors and the public held the remaining shares.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Abhishek Tyagi
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​

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