S&P upgrades outlook on Tata Power to 'Stable'

Global ratings agency Standard & Poor's today revised upward its outlook on Tata Power to 'stable' and reaffirmed its B+ rating on the company citing the progress, though slow, on tariff revision and stake sale.
The agency said it sees the Tata Group-promoted utility's cash flows and liquidity to improve on likely approval for compensatory tariffs for its Mundra project and once it receives the proceeds from its 30 per cent stake sale in the Arutmin coal mine in Indonesia for USD 500 million.
"Tata Power's cash flows and liquidity are therefore likely to improve slower than we expected over the next 12 months. Therefore we are revising the rating outlook to stable from positive," it said in a statement.

"We revised the outlook to reflect the likelihood that Tata Power's cash flows and liquidity will improve slower than we earlier expected," said its credit analyst Mehul Sukkawala.
"We are also affirming our 'B+' long-term corporate credit rating on Tata Power and our 'B+' long-term issue rating on its senior unsecured notes," it added.
The stable outlook reflects the agency's expectation that cash flows from Tata Power's regulated business and its lower capital expenditure will offset uncertainty over the Mundra project and the coal business over the next 12 months, the note added.

It stated the agency believes an increase in tariffs for the Mundra project could improve the company's financial strength and help resolve covenant noncompliance for loans related to the project.

The Central Electricity Regulatory Commission (Cerc) had in February 2014 approved a higher tariff for power from the Mundra project to compensate the company for an increase in coal costs. The Cerc also allowed a fuel-cost pass-through mechanism for power supplied from the project.
"We expect Tata Power to restrict capital expenditure to regulated businesses and defer all discretionary or new project related work to keep its debt under check. Therefore, we expect Tata Power's ratio of funds from operations to total debt to be 10-14 per cent over the next two years, consistent with an "aggressive" financial risk profile," said Sukkawala.