Rating agency CARE has suspended the ratings assigned to Essar Power's loans and non-convertible debentures (NCDs) as the company failed to provide necessary information to track ratings in these financial instruments.
The last rating action for loans and NCDs was in January 2014 when CARE Ratings downgraded the ratings on the power company from "A+" to "BBB". The combined portfolio of loans and non-convertible debentures then was Rs 4,053 crore.
CARE said the revision in rating reflects significant deterioration of the company's credit profile and liquidity, depicted by increasing overall gearing level, delays in ongoing projects along with considerable cost overrun, and lower-than-expected cash flow from operational projects. The piling up of receivables owing to weakening of the credit profile of Essar Steel India, a major customer of Essar Power, was also a driver for downgrade.
The rating revision also factors in the impact on cash flows of the consolidated entity owing to the unavailability of gas for Essar Power's gas-based power plants, likely capital expenditure to convert them to coal-based plant, delays in tie-up of additional funds for cost overrun, and commencement of debt repayment for projects that are yet to achieve positive cash flows.
