Fitch assigns NTPC's 500 mn euro notes final 'BBB-' rating

Fitch Ratings on Friday said it has assigned state-run power producer NTPC's 500 million euro, 2.75 per cent notes due in 2027, a final rating of 'BBB-', which denotes investment grade.

"The notes are issued out of its $4 billion medium-term note programme. The notes are rated at the same level as NTPC's senior unsecured debt rating as they will constitute direct, unconditional, unsubordinated and unsecured obligations of NTPC," Fitch Ratings statement said.

The final rating is the same as the expected rating assigned on January 10, it added.

NTPC Ltd has raised 500 million euros through overseas bonds sale that perhaps may be the first longest tenor euro-denominated issuance by an Indian company.

NTPC got bids for $2.4 billion, or nearly five times the targeted size, through euro-denominated bonds sale with 10-year maturity, the longest in the currency. Securities have been priced at 200 basis points over Euro Treasury.

As per the NTPC statement issued yesterday, the 10-year bond had been issued at a coupon of 2.75 per cent with a yield of 2.814 per cent.

Fitch Ratings said NTPC is the largest power generation company in India. It accounts for about 16 per cent of the country's total installed power generation capacity, and about a quarter of electricity generation.

Out of a total installed capacity of about 309 gigawatts (GW) in India as of end-November 2016, around 70 per cent was thermal; NTPC contributes about 22 per cent of the nation's thermal capacity.

It also said NTPC's ratings benefit from stable operational cash flows due to the favourable regulatory framework.

The company has long-term power purchase agreements (PPAs) for all of its plants, which allow for the pass-through of fixed costs as well as fuel costs.

Its revenue and profit are regulated based on invested capital and a rate of return, and incentives under a transparent regulatory cost-plus model.

There is regulatory certainty until March 2019, the end of the current five-year regulatory tariff period.

It also said that offtake risks are limited at NTPC as the fixed costs for each plant are payable by the customer if the plant has achieved the regulatory benchmark availability - measured by the plant availability factor (PAF), which is set at 83 per cent up to the financial year to end-March 2017 (FY17) - and will be reviewed thereafter.

Fitch's key assumptions within the rating case for issuer include revenues based on allowed costs, an ROE of 15.5 per cent and incentive income.