ICRA assigns stable rating to REC borrowing programme

ICRA has assigned a rating of AAA (Stable)/]A1+ to the enhanced long term and short term borrowing programme for FY'2017 of state-run Rural Electrification Corp (REC).
"ICRA has assigned the rating of AAA to the Rs 35,000 crore (enhanced from Rs 20,000 crore) long term borrowing programme and A1+ to the Rs 7,000 crore (enhanced from Rs 2,000 crore) short term borrowing programme of REC for FY'2017," ICRA said in a statement.
According to the statement, the overall borrowing programme for FY2017 for REC stands enhanced to Rs 42,000 crore. ICRA also has reaffirmed rating of AAA assigned earlier to the various long-term bond and bank borrowing programmes and of A1+ assigned earlier to the commercial paper/short-term debt programmes of the corporation aggregating Rs 2,05,931 crore. The outlook on the long-term ratings is Stable.

The assigned ratings derive significant strength from REC's sovereign ownership (60.64% of equity held by the Government of India (GoI) as on September 30, 2016) and the corporation's important role as a nodal agency for the GoI's rural electrification schemes under the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and also as a sole nodal agency for operationalisation of the NEF (National Electricity Fund) scheme, it said.
Further, REC, as one of the major power sector financiers, remains strategically important for the GoI, for augmenting power capacities across the country. The ratings also continue to draw comfort from REC's adequate earning profile (annualised net profit/ average total assets of 2.9 per cent for FY2016 and 3.1 per cent for H1FY2017) supported by its strong financial flexibility and low operating costs (0.18 per cent for FY2016), it said.

The entity's ability to grow its loan book while maintaining adequate profitability and controlling credit costs would be the key rating sensitivity going forward. Also any significant dilution in GoI's stake or in REC's strategic role would be key rating sensitivities, it said.