Fitch Affirms India's NHPC at 'BBB-'; withdraws Ratings

Fitch Ratings has affirmed state-run hydro power producer NHPC the Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' with stable outlook -- reflecting its robust operating and financial profile.
At the same time, Fitch has chosen to withdraw the ratings of NHPC for commercial reasons, Fitch Ratings said in a statement.
According to statement, NHPC's ratings benefit from its position as the largest hydropower producer in India with about 15 per cent of the country's hydropower capacity.
It has around 40 years of experience in constructing and operating hydropower projects. Its portfolio is diversified with 21 operational hydropower projects across seven states, with no plant accounting for more than 20 per cent of its total operating capacity.

NHPC does not have any offtake risks as it has long-term power purchase agreements for all of its operational power plants. The group benefits from a favourable regulatory regime within which it is able to pass through to its customers all of its costs - operational, financial and depreciation.
A 15.5-16.5 per cent return on regulatory equity is built into its tariff structure, along with incentives on exceeding the normative availability factor. The current tariff formula covers five years from April 2014 to March 2019.

"We expect NHPC's financial profile remain moderate despite the interim dividend and share buyback recently announced by the company. We expect NHPC's net leverage, as measured by net debt/EBITDA, to weaken to around 3x for the financial year ending March 2017 (FY17) from 2.2x for FY16. Further we expect NHPC's free cash flows to remain negative on account of its ongoing capex, which is likely to result in its leverage remaining around 3x over the medium term," it said.

Work at NHPC's 2,000MW Subansiri project has been stalled since December 2011. NHPC has also faced delays in completion of the Kishanganga plant, which it now expects to complete it in FY18 instead of 3QFY17, it said.
While Indian regulations allow prudent cost overruns to be included in the provisional tariff computation, and capitalisation of non-controllable costs incurred, NHPC has over the last two years made provisions for costs related to these stalled projects impacting profitability, it said.
Fitch expects the company's cash generation to improve once the Kishanganga project becomes operational. However, the long delay in the completion of projects, mainly at Subansiri, continues to be a concern as the earnings from the project will also be delayed.

NHPC's receivables are secured through letters of credit
and a tripartite agreement (which expired in October 2016) between the central government, central bank and states. The company is in the process of extending the tripartite agreements, it said.
NHPC has moderate linkages with its largest shareholder, the state of India (BBB-/Stable), which owns 74.5 per cent of the company.
NHPC's position as the largest hydropower generation company in India drives its strategic linkages with the state. It has received tangible financial support from the state, including unsecured debt of around Rs 30 billion as at end-March 2016.
NHPC's standalone credit profile is assessed at 'BBB-', reflecting its robust operating and financial profile. The company will benefit from a one-notch rating uplift, due to its moderate linkages with the state, should its standalone credit profile fall below that of India.

"We expect NHPC's cash balance to fall sharply from around Rs 80 bn as of end-March 16 due to the large dividend and share buyback announced by the company. The interim dividend and share buyback is likely to result in cash outflow of Rs 48.5 billioin during FY17. However we expect NHPC's liquidity to remain comfortable given its strong access to the Indian banks and capital market. NHPC has only long-term debt with maturities mostly well spread out," it added.