Moody's retains foreign currency rating of PFC, REC

Moody's today retained the 'Baa3' foreign currency long term issuer rating of Power Finance Corp and Rural Electrification Corp, both indicating moderate credit risk.

The agency said these ratings on the two entities are underpinned by their linkages with the government.

Global rating agency Moody's Investors Service has maintained a stable outlook for both companies.

Moody's Vice President and Senior Analyst Vineet Gupta said that PFC as well as REC's foreign currency issuer ratings of Baa3 "is in line with the Baa3 rating for the Government of India.

Generally, Baa rating implies moderate credit risk.

Moody's noted the ratings are underpinned by their linkage with the government, given the two companies' ownership as well as the strategic role they play in the government's plans for the power sector.

PFC and REC are leading lenders for the power sector.

Further, Moody's said PFC and REC operate in a highly regulated industry, where the policies and the level of support provided by the government have positive implications on its cost of capital, business growth and overall profitability, among others.

As per Moody's, any changes to PFC and REC's exclusive focus on financing the power sector could imply a reduced policy role, which could also adversely affect its foreign currency issuer rating.

PFC as well as REC's asset and liability profile are weak as they rely on refinancing and interest recoveries for repayment of maturing debt since on-balance sheet liquid assets are very low, according to statements issued by Moody's.

Moody's Investors Service is a wholly-owned credit rating agency subsidiary of Moody's Corp.

Gupta said the agency's expectation of very high dependence and high probability of government support for the two companies are based on the majority ownership by the government of India and its past record of supporting state-owned and state-sponsored financial institutions.