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Rating Action:

Moody's revises Tata Power's outlook to negative from stable

16 Jun 2016

Singapore, June 16, 2016 -- Moody's Investors Service ("Moody's") has revised to negative from stable the outlook on the Ba3 corporate family rating and senior unsecured rating of Tata Power Company Limited (The) following the announcement that the company has signed a share purchase agreement to buy Welspun Renewables Energy Limited (Welspun) for INR 92.5 billion in cash.

At the same time, both ratings have been affirmed.

RATINGS RATIONALE

"The change in outlook to negative reflects the combined effect of 1) entirely debt-funded nature of the transaction, which reduces headroom within the ratings, 2) uncertainty regarding the terms and structure of the bank debt that will be raised to fund the acquisition, and 3) limited details about the quality of the assets being acquired", says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

"With this acquisition, Tata Power's debt will increase by approximately 21%, thereby reducing the headroom within the rating" Tyagi, says, adding "Moody's understands that Tata Power is raising a bridge bank facility to fund the transaction, and this facility could pressure the company's liquidity profile depending on its terms, including maturity profile".

With this transaction, Moody's expects Tata Power's Adjusted Debt/Capitalisation to increase, but to remain below the rating tolerance level of 75%.

Moody's notes that the acquisition provides meaningful diversification benefits to Tata Power's business profile with the increase in renewable projects in its portfolio which also have long term power purchase agreements.

Tata Power's renewable energy portfolio nearly doubles with this acquisition and would represent approximately 23% of its generation capacity which is in line with its spelled out long term strategy of portfolio fuel mix.

However, there is limited information at this stage about the quality of the underlying assets being acquired and about Tata Power's ultimate plan to integrate them within its existing portfolio.

Tata Power's Ba3 ratings include a one-notch uplift based on our assessment that Tata Power will likely receive support from its major shareholder, Tata Sons Ltd. (unrated), if needed.

The ratings could revert to stable if Moody's considers that 1) the terms of the bridge finance do not exert material credit and liquidity pressure on the rating, and 2) the quality of assets being acquired are not materially weaker than those of Tata Power.

On the other hand, the ratings could be lowered if 1) the acquisition bridge finance is short-term in nature and Tata Power is unable to refinance it with long term debt that is of similar terms relative to its existing debt, 2) Moody's considers that performance of the acquired assets is materially lower than that of Tata Power's existing assets.

The ratings could be also lowered if Tata Power raises its financial leverage further, leading to financial metrics exceeding the ratings tolerance, including (3) FFO interest coverage falling below 1.3x to 1.4x, adjusted debt/ book capitalization exceeding 75%, and RCF/debt dropping below 3.5% to 4.5% on a sustained basis.

Furthermore, the ratings could be pressured if Coastal Gujarat Power Limited (CGPL) -- which is a subsidiary of Tata Power - fails to obtain waivers on its covenant breaches within a reasonable timeframe, and without significant additional costs or onerous new terms.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

Tata Power is one of the largest private-sector power utility in India with an installed generation capacity of 9,156 MW as of March 2016. The company's business operations include power generation (thermal, hydro, solar and wind), transmission and distribution.

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 revises Tata Power's outlook to negative from stable
No Related Data.
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