Singapore, March 29, 2016 -- Moody's Investors Service has assigned a first-time provisional
(P)Baa3 rating to Adani Transmission Limited's (ATL) proposed senior
secured bond, to be denominated in Indian Rupee.
The outlook on the rating is stable.
ATL will apply the proceeds of the proposed bond issuance to partially
refinance existing bank loan facilities.
The rating is provisional, based on the proposed bond's draft documents
which have been reviewed by Moody's. It is expected that the provisional
status of the rating will be removed and a definitive rating will be assigned
upon the satisfactory review of the final documents.
RATINGS RATIONALE
"The (P)Baa3 rating primarily reflects ATL's regulated business
to operate transmission lines of approx. 5,000 circuit kilometers,
mostly in Central and Western regions of India", says Abhishek Tyagi,
a Moody's Vice President and Senior Analyst.
ATL's regulated transmission business is underpinned by stable and
predictable cash flows that are generated based on pre-determined
regulated returns. Such returns support ATL's Baa3 rating
and stable outlook.
The well-developed regulatory framework for power transmission
in India allows for recovery of costs and returns and has periodic resets,
which further enhances the credit profile of ATL.
"The (P) Baa3 rating also reflects ATL's moderate financial
leverage, combined with its active capex program to expand its transmission
network", Tyagi says, adding "As such, we
expect the ratio of Funds from Operations/Adjusted net debt to be in the
12%-13% over the next 1-2 years".
While ATL has a short track record, the company has been outperforming
regulatory expectation, with very high transmission line availability
relative to regulatory norms.
The ratings incorporates development risk around future transmission projects
that ATL will develop as part of its growth strategy. Moody's
notes that financing documents incorporate provisions that limit the company's
debt-funded expansion. These features, along with
management's plan to adopt a prudent growth strategy, provide
support for the (P)Baa3 rating.
The rating is challenged by the weak credit quality of its counterparties,
i.e. - state owned distribution companies which have
weak financial profiles. This counterparty risk is partly mitigated
by the pooling mechanism under which any under-recovery is socialized
across all transmission licensees.
Part of ATL's revenues relate to trading business, expected
to be in the 15%-20% range, and transacted
on a back to back basis mainly with other Adani group parties.
The presence of such business enables ATL not to be designated as non-banking
financial corporation (NBFC). The (P)Baa3 rating incorporates Moody's
expectation that this trading business will remain at similar levels in
the future.
The rating outlook is stable, reflecting the predictable operating
cash flows from existing transmission lines, and our expectation
that financial performance will be in line with rating tolerance metrics.
The ratings are unlikely to be upgraded in the near term, based
on the company's business profile and financial strategy. Over
time, the rating could be upgraded if ATL assumes a prudent growth
strategy that is underpinned by conservative financial leverage,
while maintaining non-transmission business at the expected 15%-20%
level. Financial metrics that Moody's would look for include
FFO/Net Debt and FFO Interest coverage exceeding 20%-25%
and 2.5x respectively and on a consistent basis.
On the other hand, the rating could be downgraded if ATL undertakes
aggressive expansion, or if non-transmission business is
consistently above 25%. Financial metrics that could prompt
a downgrade include: FFO Interest Coverage Ratio falling below 1.75x,
and FFO/ and Net Debt declining below 7% on a sustained basis.
The principal methodology used in these ratings was Regulated Electric
and Gas Networks published in November 2014. Please see the Ratings
Methodologies page on www.moodys.com for methodology.
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
SUBSCRIBERS: (852) 3551-3077
Terry Fanous
MD-Public, Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's assigns first-time (P)Baa3 rating to Adani Transmission Limited