S&P downgrades outlook on Tata Power to negative

TATAPOWER-OUTLOOK-SP:S&P downgrades outlook on Tata Power to negative

Standard & Poor's downgraded the outlook for India's Tata Power to 'negative' from 'stable' on Monday, citing the company's limited ability to arrange funds for a 4000 megawatt project in Gujarat, after it breached a debt pact.

The company's cash flow and financial risk profile could deteriorate over the next six to nine months and availability of funds to the company will be limited, the ratings agency said in a statement.

Tata Power is losing money on the project, as a change in Indonesia's mineral export rules has pushed up the cost of coal for Indian buyers, who source 70 percent of their coal imports from the southeast Asian nation.

Several projects, including the Mundra project in Gujarat, were originally b id for at a fixed tariff. Now Tata Power, Reliance Power and other power producers are lobbying the government to raise the prices at which they sell power to state-run distribution utilities.

"The factors which have led S&P to lower the outlook are already known. Still, a negative rating can make fresh funds expensive for Tata Power," said an analyst with a Mumbai-based brokerage, who asked not to be named.

Tata Power's Chief Financial Officer told Reuters last month that it has put on hold all new projects based on imported coal and warned that it would be a challenge for the company to meet its target of a five-fold increase in generating capacity by 2017.

Tata Power shares, valued at about $4.35 billion, closed 2.2 percent down at 101.35 rupees on the National Stock Exchange.