S&P affirms PFC's long-term credit rating with stable outlook

S&P Global Ratings today said it has affirmed 'BBB-' long-term issuer credit rating on Power Finance Corporation (PFC) with stable outlook.
"We affirmed BBB- long-term ratings on the company's senior unsecured debt," S&P Global Ratings said in a statement.
"We affirmed the ratings because we expect PFC to maintain its good profitability, satisfactory business position and extremely high likelihood of government support over the next 12-18 months," said S&P Global Ratings Credit Analyst Amit Pandey.
The agency expects PFC to maintain its profitability at higher than the broader financial industry. The company's core earnings of about 2.8 per cent of average adjusted assets for the past three years were higher than the 0.7 per cent for the banking industry in India, the statement said.

PFC's return on assets could decline in the next couple of years, largely because of higher credit costs due to weakness in asset quality.
"That said, we expect the company's earnings and capitalisation to remain good over the period. We expect its pre-diversification risk-adjusted capital (RAC) ratio to be 10-10.5 per cent over the next 12-18 months," the statement added.

It expects PFC to remain a key player in financing the Indian power sector for at least the next two years.
"Our assessment of PFC's business position reflects the company's strong niche position as the primary government agency for financing the electricity sector in India, especially state- and central government-owned electricity utilities," Pandey added.

The assessment also considers PFC's low business diversity. The company has a stable market share of about 23 per cent in lending to the power sector in India.
"We believe that there is an extremely high likelihood that the Government of India would provide timely and sufficient extraordinary support in the event of PFC's financial distress," , the statement said.
The stable outlook on PFC reflects S&P's expectation that the company's critical role in the power sector in India is highly likely to continue over the next few years at least, Pandey added.