Fitch affirms stable outlook for PFC & REC

Credit rating agency Fitch today assigned a stable outlook to state-run Power Finance Corporation and Rural Electrification Corporation.
Fitch Ratings has affirmed PFC's Long-Term Issuer Default Rating (IDR) at 'BBB-', terming the outlook as stable, it said in a statement.
It has also affirmed PFC's senior unsecured rating and its USD 1 billion senior unsecured medium-term note programme at 'BBB-', it added.
In a separate release, the agency said it has affirmed (REC's Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-'.
On PFC, it said its ratings are equalised with those of India (BBB-/Stable). This reflects the entity's public sector status, government ownership and strong operational as well as strategic ties with the government.

"PFC is, therefore, classified as a credit linked entity under Fitch Ratings' criteria. The ratings also reflect PFC's healthy financial performance and low delinquency ratio," it added.

Concentration risk arises from PFC's exposure to the power sector, with the top 10 borrowers accounting for around 43 per cent of its total exposure at end-FY 2014-15, it said.
However, this risk is mitigated by the guarantees from state governments for part of the loans extended to state utilities and the use of escrow accounts in the case of state sector borrowers, Fitch added.
On REC, Fitch said the PSU's ratings are equalised with those of the Indian sovereign (BBB-/Stable) reflecting the government of India's ownership and strong operational and strategic ties with the government that result in a strong likelihood of extraordinary government support if needed.

"REC, is therefore, classified as a credit linked entity under Fitch's criteria," it added.
Concentration risk arises from REC's exposure to the power sector. However, this risk is mitigated by guarantees from state governments for part of the loans extended to state utilities, use of escrow accounts and the critical role that it plays in providing infrastructure financing, Fitch said.