Tata Power assigned ‘BB’ rating with stable outlook

Insight Online News

New Delhi, Nov 5 : Standard and Poor’s (S&P) has assigned its ‘BB’ rating with stable outlook on Tata Power following the reassessment of renewables businesses and potential for financial support from Tata in times of liquidity stress. The rating reflects the S&P view that regulated and renewables businesses have stable cash flows and that Tata Power’s moderately strategic importance to its parent company Tata Sons and potential financial support from Tata Sons in times of liquidity stress further support the company’s credit quality.

In October, S&P had upgraded the global ratings for Tata Steel, Tata Motors and Jaguar Land Rover Automotive PLC following the reassessment of influence and potential for extraordinary financial support from Tata Sons to group entities.

“The stable outlook reflects our expectation that Tata Power’s stable regulated cash flows, prudent growth in its renewables segment, and ongoing asset divestments will result in adequate interest-servicing capability over the next 12-18 months,” said the rating agency in a statement. It also expects Tata Power to appropriately manage its liquidity via its supportive banking relationships and good access to the credit market as part of the wider Tata group.

According to S&P, about 80 per cent of the company’s EBITDA is generated from its regulated transmission and distribution businesses, as well as from the renewables segment. Following the recent 51 per cent-stake acquisition of four distribution companies in Odisha, these regulated assets will account for about 60 per cent of the company’s consolidated EBITDA over fiscals 2022 and 2023.

The rating agency has also factored in the prospects of renewable energy and related businesses such as solar engineering, procurement, and construction businesses becoming growth segments in the next two to four years. Although Tata Power’s business profile has been weighed down by the loss-making thermal power plant, Coastal Gujarat Power Ltd. (CGPL) in Mundra, the asset’s profitability has stabilized in recent years. In addition, stable dividend contributions from its minority stakes in Indonesian coal mines partially hedge against CGPL’s exposure to the price of imported coal. However, higher coal prices currently will hurt profitability at CGPL.


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