Moody's puts Tata Power under review for downgrade

Cites breach of agreement terms by company on bank loans raised for UMPP at Mundra

Rating agency Moody's has placed Tata Power Company's (TPC's) Ba3 corporate family rating on review for downgrade due to material covenant breaches on bank debt associated with ultra mega power project at Mundra in Gujarat.

However, the covenant breaches do not constitute a payment default, Moody’s Investor Services said in statement.

The breaches are related to TPC not meeting its agreed maximum debt to equity ratio and minimum debt service coverage ratios.

Coastal Gujarat Private Limited  (CGPL), subsidiary of Tata Power is executing an imported coal 4,000 MW power project in Mundra.

The project value is around Rs 18,000 crore (in excess of $3 billion) or 30% of TPC's total assets reported in FY12. Financial challenges at the project have created considerable strain for TPC; as evidenced by the covenant breaches, rating agency said.

Moody’s also put B1 senior unsecured bond rating and Senior Unsecured MTN Program (foreign currency) rating of (P)B1 under review for downgrade.

The review action also reflects questions relating to the project's long-term impact on TPC's financial profile and absent changes to cost or tariff structures.

"CGPL is in the process of obtaining waivers from several financial institutions for the covenant breaches, but the issue may take several months to resolve," said Ray Tay, a Moody's Associate Vice President -- Analyst and lead analyst for TPC.

While waivers are being negotiated, TPC will be subject to curtailment of new draws once it reaches the currently approved level of 83% of the project facility, thereby introducing greater liquidity risk, absent additional bank waivers, said Tay.

The review of ratings for possible downgrade will focus on whether the waivers can be obtained quickly.  It would also focus on whether the inclusion of any resulting lenders' conditions may adversely affect TPC's operations or the Mundra project.

Moody’s would look at actions taken by TPC's management to improve the long-term financial viability of the Mundra project; and the ability and willingness of TPC's management and its holding company to support the project and to adequately contain risks associated with the covenant breaches.