Fitch assigns 'BBB-(EXP)emr' rating to NTPC's masala bonds

Fitch Ratings today said it has assigned an expected rating of 'BBB-(EXP)emr' to state-run power giant NTPC's proposed rupee-denominated senior unsecured notes that are payable in the US dollars.
The notes will be issued out of its USD 4 billion medium- term note programme, which Fitch has rated at 'BBB-', the rating agency said in a statement.
According to the statement, the notes are denominated in rupees, but both the coupon payments and principal on maturity are settled in US dollars at the prevailing rupee-dollar exchange rate.
As such, settlements are subject to transfer and convertibility risk on exchange operations involving the Indian rupee, and thus the rating on the notes can be no higher than India's Country Ceiling of 'BBB-', it said.

The linkage of payments under the terms of the notes to the prevailing exchange rate means that Fitch does not regard the conversion of currencies at the transaction's initiation and maturity as altering the underlying local-currency nature of the note, it said.
Fitch's 'emr' suffix denotes embedded market risk that has been applied to the rating of the notes to reflect the fact that upon maturity the investors are paid in US dollars rather than the currency of the notes.
The notes are rated at the same level as NTPC's senior unsecured debt rating as they will constitute direct, unconditional, unsubordinated and unsecured obligation of NTPC. The final rating is contingent upon the receipt of final documents conforming to information already received, it added.