Fitch assigns NTPC's proposed EUR notes 'BBB-(EXP)' rating

Fitch Ratings has assigned an expected rating of 'BBB-(EXP)' to NTPC Ltd's (BBB-/Stable) proposed senior unsecured EUR notes, which are to be issued out of its USD four billion medium-term note programme.
"The notes are rated at the same level as NTPC's senior unsecured debt rating as they will constitute the direct, unconditional, unsubordinated and unsecured obligations of NTPC. The final rating is contingent upon the receipt of final documents conforming to information already received," Fitch Ratings said in a statement.
According to the statement, NTPC is the largest power generation company in India. It accounts for about 16 per cent of the country's total installed power generation capacity, and about a quarter of electricity generation.

Out of a total installed capacity of about 309 gigawatts (GW) in India as of end-November 2016, around 70 per cent was thermal and NTPC contributes about 22 per cent of the nation's thermal capacity.
NTPC's ratings benefit from stable operational cash flows due to the favourable regulatory framework. The company has long-term power purchase agreements (PPAs) for all of its plants, which allow for the pass-through of fixed costs as well as fuel costs.
Its revenue and profit are regulated based on invested capital and a rate of return, and incentives under a transparent regulatory cost-plus model. There is regulatory certainty until March 2019, the end of the current five-year regulatory tariff period, it said.

Offtake risks are limited at NTPC as the fixed costs for each plant are payable by the customer if the plant has achieved the regulatory benchmark availability - measured by the plant availability factor (PAF), which is set at 83 per cent up to the financial year to end-March 2017 (FY17) - and will be reviewed thereafter, it said.

The plant availability rates in 2QFY17 were much higher at 90 per cent (2QFY16: 88%) for the coal-based plants and 97 per cent (2QFY16: 98%) for the gas-based plants, it said.
The current tariff block links the incentive income to achieving a plant load factor (PLF) of more than 85 per cent, instead of PAF earlier.

NTPC has managed its counter party risks well, despite most
of NTPC's customers being state utilities with weak financial profiles.
NTPC's strong bargaining position - as the lowest-cost electricity producer and the supplier of a large share of electricity bought by the state utilities - helps to ensure timely payments.
Fitch assesses the linkages between NTPC and the Indian sovereign (BBB-/Stable) as moderate. Fitch assesses NTPC's standalone credit profile at 'BBB-'.
Based on the agency's parent and subsidiary linkage criteria, Fitch will provide a one-notch rating uplift to NTPC's ratings if the company's standalone ratings were to be lower than that of the sovereign, provided that the linkages remain intact.