Tata Power outlook revised to positive on refinancing progress: S&P

S&P Global Ratings today said it has revised its outlook on Tata Power to positive but has withdrawn its rating at the company's request.

"At the same time we affirmed our 'B+' long-term issuer credit rating on the India-based company. We then withdrew the rating at Tata Power's request. The company has no outstanding rated foreign currency debt," the ratings agency said in a statement.

According to the statement, the outlook revision reflected its expectation that Tata Power would refinance its debt to significantly alleviate liquidity pressures in the next three to nine months.

The agency expected the company to refinance its external commercial borrowings related to its Mundra project in the next three months, removing the covenant breach. It also anticipated that Tata Power would refinance some of its other short-term debt over the fiscal year ending March 2019 (fiscal 2019).

The positive outlook at the time of the withdrawal also reflected its expectation that the company's ongoing asset sales, stable regulated cash flows, and growth in the renewables segment would help reduce leverage, it said.

Tata Power's leverage had risen following the debt-funded acquisition of Welspun Renewables Energy in fiscal 2017.

The agency expected Tata Power's ratio of funds from operations (FFO) to debt to improve to about 9 per cent in fiscal 2019 and above 10 per cent in fiscal 2020, from 7 per cent in the previous year, it added.

The ratings affirmation prior to the withdrawal reflected agency's view that Tata Power's stable regulated cash flows would offset higher earnings volatility in the company's unregulated segments, particularly in Coastal Gujarat Power Ltd., which owns the Mundra plant.

It has estimated the company's EBITDA margin to be 22-24 per cent in the next 12-24 months.