Power Grid: Fitch affirms 'BBB-' ratings with stable outlook

Fitch Ratings today said it has affirmed 'BBB-' long-term issuer default rating (IDR) to state-owned Power Grid Corporation.
The outlook on the issuer default rating is stable, Fitch Ratings said in a statement.
According to the statement, Fitch evaluates Power Grid's standalone profile at 'BBB', which benefits from the cash flow certainty gained from the company's dominant market position and regulated business model.
It said Power Grid Corp has managed its counter-party risk well despite the weak financial position of many of its customers.
The company's high capex requirements are likely to lead to negative free cash flow over the next three to four years. Its IDR, which is a notch below its standalone credit profile, is constrained by the 'BBB-' IDR of its 57.9 per cent (at end-September 2017) owner, India, the rating agency added.

Power Grid Corp rating benefits from the regulatory nature of more than 95 per cent of its revenue, which has no offtake risk as long as it meets regulatory operational benchmarks, 98 per cent availability for alternating current systems and 95 per cent for high-voltage direct-current systems, it said

Revenue from existing operational transmission assets is based on a return on equity of 15.5 per cent and full pass- through of all fixed costs within regulatory norms, including interest charges. The latest five-year regulatory tariff period extends to FY19.
The agency said Power Grid Corp ratings benefit from its strong market position. The company owns and operates around 85 per cent of India's inter-regional and inter-state electricity transmission network assets.

It commissioned Rs 320 billion of projects in FY17, exceeding Fitch's expectations and plans total capex of about Rs 250 billion per year over the next three years, it added.