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Global credit rating agency Moody’s Investors Service has downgraded the outlook on India’s largest private power producer Tata Power Company (TPC) to negative from stable.
"The negative outlook reflects renewed uncertainties related to the material covenant breaches on bank debt associated with TPC's Gujarat-based Mundra Ultra Mega Power Project which is being executed under its fully owned subsidiary, Coastal Gujarat Power Limited or CGPL," says Ray Tay, associate vice president, Moody’s.
The imported coal-based 4,000-MW Mundra project is under financial stress following Indonesia’s move to ban exports of coal below the notified prices since September 2011. The company is currently seeking an increase in rates for power produced from the Mundra ultra mega power plant (UMPP) in Gujarat.
"Although CGPL has secured waivers from the banking group for the covenant breaches, they expired on 30 June 2013, bringing the liquidity risk associated with the project back to the fore," adds, Tay.
The negative outlook reflects continued delay in the resolution of CGPL's tariffs, which are ultimately expected to be approved. But absent timely approval will exert pressure on CGPL's finances, while the low coal prices and stoppage of work at one of TPC's co-owned mines adds uncertainty over the extent to which its coal investments will be able to offset the losses.
TPC's previous stable rating outlook was based on Moody's expectation that CGPL will obtain the necessary waivers on terms that will not be severely detrimental to the Mundra project or to TPC.
