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Rating Action:

Moody's assigns first-time (P)Baa3 rating to Adani Transmission Limited

29 Mar 2016

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
No Related Data.
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